Aussies look to downsize as cost of living bites

PHOTO: To comfortably absorb the recent interest rate hikes a household would need to be earning a minimum income of $180,000 – significantly more than the average salary. Picture: Supplied

Many Australians are considering downsizing their homes in order to cope financially, according to a recent study. But is that the right move?

As the cost of living upsizes, more Australians are considering downsizing their homes in order to cope financially according to a recent Finder study.

Physical downsizing is a trend typically associated with empty nesters who find themselves in large family homes after the kids move out.

Financial downsizing, however, is defined as moving from a larger to a smaller dwelling of lesser value – whether that be as a homeowner or tenant – to save on ongoing household expenses.

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Comparison site Finder recently revealed that 13 per cent of Australians they surveyed have been forced to find a more affordable property as they feel the pinch of inflation.

That translates to 2.6 million people who say they’ll have to downsize in response to the rising cost of living.

Of those respondents, 8 per cent – or the equivalent of 1.6 million people – said they were going to move to a cheaper rental as affordability worsens.

However, according to PropTrack data, all markets except regional Northern Territory have experienced significant rises in asking rents.

Over the 12 months to December, Brisbane (11.4 per cent), Adelaide (11.8 per cent), regional South Australia (10.7 per cent) and regional Western Australia (12.5 per cent) recorded double-digit rental growth.

In Western Australia, 12 per cent of people in the Finder survey said they planned to downsize to a cheaper rental property.

Moving to a cheaper mortgage

The survey of more than 1000 Australians found 5 per cent had decided to sell their property for a cheaper one to reduce their mortgages.

Finder money expert Sarah Megginson, said many Australians feel they’re left with no other choice.

“The cost of living crisis has left many with little option but to sell or move. Millions are having to reevaluate their living situation to alleviate financial stress,” she said.

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“Housing costs are generally the biggest burden on the household budget – so reducing that outlay is quickly becoming a priority.”

Comparison site Finder recently revealed that 13 per cent of Australians they surveyed have been forced to find a more affordable property as they feel the pinch of inflation. Picture: Supplied

For an average Aussie with a $500,000 home loan, repayments have jumped by about $900 a month since April last year when interest rates starting climbing sharply.

Finder’s home loan expert, Richard Whitten, said rate rises were just one part of the property affordability puzzle.

“While more rate rises will continue to push this trend further, I think downsizing is on the cards for people because — even though property prices have started to come down — previous runaway growth during the early years of the pandemic has meant some people feel like there’s nowhere to go but down.

“They simply can’t stretch any further so they think downsizing is the best option.”

The true cost of downsizing

While downsizing a home, and subsequently a mortgage, might seem like the logical step for homeowners with tight budgets, Mr Whitten said the costs of moving can often be counterproductive.

“I definitely think stamp duty factors into people’s decision making when downsizing.

For an average Aussie with a $500,000 home loan, repayments have jumped by about $900 a month since April last year when interest rates starting climbing sharply. Picture: Supplied

Regardless of whether someone is downsizing to a physically smaller place, a cheaper place – or both – stamp duty might still cost them tens of thousands of dollars,” he warned.

The stamp duty cost means downsizing is not something you can take on lightly, according to the home loan expert.

“There’s also other costs like removalists, real estate agent fees and the cost of getting your property in top shape for the sale. It can be a lot of work and money.”

Downsizing an existing home loan

Before jumping on the downsizer train, Mr Whitten said struggling homeowners should weigh up the costs of selling and then buying again versus staying put.

“There are lots of things people can do before turning to downsizing. Homeowners and borrowers actually have a lot of ways they can cut down so they’re actually kind of fortunate in that sense.

“The biggest one, if you’re a homeowner who still has a mortgage, is looking to shrink your repayments by refinancing to a lower rate,” he said.

Most people’s rates are going up at the moment, and some may think there is little point of asking their lend, is ias atually a pretty good time to get a better deal, according to Mr Whitten.