Owning your own home – it’s the classic Australian aspiration, but how many Australians achieve it? Moreover does it make them happy or does it pose a burden upon retirement?
We were interested in the status of the “great Australian property dream” so we asked 2,400 Australians as part of Perpetual’s Lifetime Study.
Home ownership rates
The path to home ownership in Australia is a long one. Only 7% of the people surveyed owned their home outright in their thirties. This rose to 17% in their forties, before doubling to 36% in their fifties.
By far the biggest jump occurs when people moved into their sixties, where 62% of people reported owning their home. From there the home ownership continues to increase, with 78% of people over the age of eighty owning their home outright.
Home owners are a happy bunch
Our findings show home owners are happier about where they live and more positive about their financial situation, compared with people who rent or have mortgages. Home owners are more likely to describe themselves as comfortable and relaxed, people with mortgages say they are the busiest, whilst renters are the most hopeful about the future.
Only 15% of home owners feel negative about their financial position, compared to 28% of people with mortgages and 44% of renters. So, if you’re currently paying off a mortgage, or considering taking one out, there’s light at the end of the tunnel.
A tale of five cities
Despite skyrocketing house prices in Sydney and Melbourne over the past decade, home ownership rates in these cities are still the highest in the country at 32% and 31% respectively.
Perth stands out as the city with the lowest home ownership rate (19%) and the highest rate of mortgage holders (38%). Brisbane is the sunny city of renters (39%).
Your family home in retirement
As our research shows, 62% of people finally pay off their mortgage in their sixties. Yet many of these new home owners will retire just a few years later.
“What should I do with the family home?” is a common question people have as they approach retirement. It’s an emotional and deeply personal decision because a family home is far more than bricks and mortar – it is a place full of shared memories.
Despite the complexities involved, it is still important to objectively assess the options available to you before you retire. From a financial perspective, your family home may be the most valuable asset you take into retirement. Yet the monetary value of your home is inaccessible – you can’t sell one bedroom at a time to help fund your retirement as you grow older.
In order to access the equity of the family home, some of our clients choose to sell and downsize. If this is something you’re considering, we’d love to talk to you about an initiative called ‘Downsizer contributions’, which came into effect on 1 July 2018.
‘Downsizer contributions’ – straight into your super
Under this initiative, people over the age of 65 who sell their home may be able to contribute some or all of the sale proceeds into super. It’s an opportunity to maximise your super balance when you would otherwise be prevented because of your age, work status or total superannuation balance.
Usually, the superannuation legislation stipulates that if you are between the ages of 65 and 74, you can only make voluntary contributions to super when gainfully employed on at least a part-time basis. If you are age 75 or above, you can no longer make voluntary contributions to your super.
These restrictions do not apply if you take advantage of ‘Downsizer contributions’. This means you can boost your balance in the tax effective super system. It is particularly appealing if you are a self-funded retiree whose wealth is tied up in tangible assets like property, because it allows you to transfer some of the equity from your home into super.
There are eligibility requirements for ‘Downsizer contributions’ and potential tax and social security implications, so you should seek financial advice before making a decision.
The granny flat – a win-win solution?
Downsizing can be an effective way to unlock the equity in your home, but it isn’t for everyone. An alternative plan for retirement which is gaining popularity is the construction of a granny flat adjoining the family home. Today’s granny flats are a far cry from the humble room in the backyard. They can offer a sophisticated, secure, low-maintenance alternative to a retirement village.
Some also see it as a way to help their adult children live rent-free while they save for their first deposit. Then, later in life, roles are reversed and the parents move into the granny flat, allowing the adult child and their family to move into the family home.
Under these sorts of arrangements, the children benefit financially while the parents are able to stay in the neighbourhood with the peace of mind of knowing their family are just next door. In the right circumstances it can be a win-win situation.
How well does your home fit into your retirement strategy?
Your family home could be your most valuable asset in retirement. You’ve spent a lifetime paying it off – don’t you owe it to yourself to make the most of your equity? Our experienced advisers can take you through all of your options.