‘We need to downsize but can’t sell our home. Can we get a bridging loan?’

Q: My husband and I are both retired, we’re aged 68 and 71. Our residence is much too big for us to clean and maintain. We want to downsize but we live in a small fishing community and due to Covid-19, our home is proving difficult to sell. My question is, do we have to sell our property before we can move? We have some funds for a deposit, but not enough to buy a smaller house in which to live.

A: This is a great question. Essentially your question is, would you be able to obtain bridging finance to acquire your new, smaller home before you sell your current home? As usual with this type of question, the answer will include the words ‘it depends’.

Generally, it is better to have some certainty about the price you will be able to obtain for your current home before you commit to your new home to avoid any risk that you may be paying too much for the new property. There may be a local real estate agent who can give you an indication of the likely value of your property in the current market conditions.

(You will be aware that such estimates cannot be totally relied upon and it may also be worth waiting for a while until the world is a little more ‘normal’ before considering such an important change.)

Notwithstanding this, it will not be easy to find a lender who will provide this type of finance because you are retired. It may be worth talking to a mortgage broker to see whether or not it is possible to obtain this type of finance in your circumstances before making any further decisions. Certainly, at this time, with interest rates very low, the effective cost of the bridging finance should be modest.

Additionally, it is worth noting that when you do downsize, you are potentially entitled to contribute more money to superannuation under the downsizing provisions. You could contribute up to an additional $600,000 into super as a couple, notwithstanding the fact that you are already retired.

For your information, I have set out below the requirements which you need to meet in order to be able to make such a contribution. Financial advice is recommended for such a decision.

You will be eligible to make a downsizer contribution to super if you can answer yes to all of the following:

• you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
• the amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged on or after 1 July 2018
• your home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale
• your home is in Australia and is not a caravan, houseboat or other mobile home
• the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
• you have provided your super fund with the downsizer contribution into super form either before or at the time of making your downsizer contribution
• you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
• you have not previously made a downsizer contribution to your super from the sale of another home.