Falling auction clearance rates are prompting retirees to consider reverse mortgages as an alternative to selling
One in three older Australian homeowners are postponing plans to downsize as softening property market conditions undermine seller confidence, according to new survey data.
Research from Seniors First found 33.7% of homeowners aged over 55 have placed sale plans on hold amid declining auction clearance rates and broader market uncertainty. A further 62.2% said they would prefer to access equity through a reverse mortgage rather than sell in current conditions.
Australian Bureau of Statistics data shows more than 5.5 million homeowners are aged over 55. Weekend auction clearance rates have fallen to an average of 47.9%, down from 71.9% a year ago.
"For a long time, downsizing has been seen as the natural next step for older Australians looking to unlock wealth from their home," said Darren Moffatt (pictured right), chief executive officer at Seniors First. "What is changing is confidence. People are taking more time, watching the market closely and looking into alternative options before making major housing and retirement decisions."
Moffatt attributed the shift in part to Capital Gains Tax uncertainty, with retirees increasingly exploring ways to free up cash without listing their properties.
"We are seeing growing interest from homeowners seeking greater flexibility and looking for ways to access housing wealth without putting their home on the market," he said.
Finance professionals have cautioned, however, that reverse mortgages carry material financial risks. André Dixon (pictured right), senior finance broker at Inovayt, identified compounding interest as the primary concern for borrowers. "Because no repayments are made, interest is added to the balance each month and you end up paying interest on interest," he said.
"With variable rates that are often higher than standard mortgages, the loan can grow quickly and significantly reduce home equity. A reverse mortgage directly reduces the equity available to leave behind. The longer the loan runs, and the more funds are drawn, especially in a lump sum, the less is left in the property for future generations."
Dixon also flagged the consequences for families once the loan falls due for settlement. "The loan must be settled once the homeowner moves into aged care, sells, or passes away — often requiring the home to be sold." he said.
"Families can be surprised by how little equity remains. Despite these risks, a reverse mortgage can be a useful tool for retirees who are 'asset rich but cash poor.'"
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