The recent interest rate cuts and the normal “spring surge” seem to have combined to create this record figure. So far, house prices appear to be holding up in the face of this increased supply.
In recent months one of my most common client conversations has been about downsizing to release equity. For most New Zealanders their house is the most significant financial asset they own. Downsizing is not a decision to take lightly and can be a pivotal decision in shaping a client’s financial future.
The decision to downsize typically begins with the realisation that the current property is larger than needed for their future lifestyle or is no longer affordable.
For many, this comes after children have moved out, they’re nearing retirement or their income has declined, or they’ve experienced changes in health that make maintaining a large home more difficult.
As a financial adviser, I start with a review of the client’s financial picture, including assets, liabilities and long-term goals. Although this may sound complex, in reality it’s normally straightforward and often enlightening for the client. Only with the bigger picture can we work out whether downsizing is likely to provide the desired financial outcomes and whether it aligns with their broader goals.
Once a client has made the decision to downsize, the next step is finding a new, more affordable home. This process is not just about finding a smaller house; it’s about ensuring that the new property fits with the plan. The goal is to reduce living expenses without compromising quality of life. Financial considerations are crucial here — by purchasing a smaller home, clients can lower (or remove) mortgage payments, cut utility bills and reduce property maintenance costs. These savings can then be redirected towards other financial goals, such as increasing retirement savings, paying off debt or investing in other opportunities.
One of the most compelling reasons for downsizing is the ability to unlock home equity. Home equity — the difference between what a home is worth and what is owed on it — can represent a large portion of a person’s net worth. By selling a larger home and buying a smaller one, clients can release equity that may then be reinvested or used to support their financial goals. For retirees, this could mean supplementing retirement savings, funding long-term care, or simply enjoying a more comfortable lifestyle.
By its nature the process of downsizing is a one-off event. The quality of the advice, and the way in which the advice is implemented, is a key part of helping secure the client’s long-term financial future. To make quality decisions the process should include modelling based on the client’s long-term income needs, risk profile and life expectancy. It is very seldom that investing in cash and fixed interest (term deposits) alone will achieve the client’s long-term objectives.
One of the most common hurdles I help clients navigate with downsizing is the emotional attachment to their current home. Many clients have lived in their homes for decades, and the thought of leaving can be difficult. The process of decluttering, selling personal items and preparing for the move can also be stressful. I work with clients to acknowledge these emotional aspects and balance them with the financial advantages of downsizing.
There are also costs associated with downsizing that must be factored in. Selling a home involves real estate agent fees and potentially necessary repairs to make the property market-ready. The new property will also come with one-off costs such as moving expenses and sometimes renovations. As a financial adviser, I emphasise the importance of incorporating these expenses into the overall downsizing strategy to ensure that the process remains financially advantageous.
Downsizing is often a smart decision for those looking to improve their financial situation, particularly as they near retirement or wish to reduce living expenses. It can help clients free up equity, reduce monthly costs and simplify their lives. But it’s crucial to approach downsizing thoughtfully, with careful consideration of both financial and emotional factors. By working with a financial adviser, homeowners can ensure the decision to downsize supports their broader financial plan, helping them achieve greater security and peace of mind in the years ahead.
— Peter Ashworth is a principal of New Zealand Funds Management Ltd and is a Dunedin-based financial adviser. The opinions expressed in this column are his own and not necessarily those of his employer. His disclosure statements are available on request and free of charge.
