Beginner's Guide to Downsizing Your Home in Kew

Downsizing in Kew usually means releasing a significant amount of equity from a larger family home and moving into a smaller property, often without needing a new home loan at all.

Most downsizers we work with in this area are moving from four-bedroom period homes near Cotham Road or streets around Kew Junction into two or three-bedroom apartments or townhouses, often within the same suburb. The financial question isn't usually whether you can afford the new property, but how to structure the transaction so you retain flexibility, minimise tax where relevant, and avoid paying for a loan you don't need.

How Equity Release Works When You Downsize

When you sell a property worth more than the one you're buying, the difference is released as cash. If you're selling a home valued at the current Kew median and purchasing an apartment or townhouse for less, you'll typically have several hundred thousand dollars in equity available after settlement. That equity can be used to purchase the new property outright, held in savings or offset, or reinvested depending on your circumstances.

Consider a couple selling a family home in Kew that's held without a mortgage. They're purchasing a two-bedroom apartment closer to the Kew Junction precinct. The sale proceeds cover the purchase price, stamp duty, and settlement costs in full. They don't need a home loan at all, and the remaining equity sits in an offset account linked to an investment property loan they hold elsewhere. The offset reduces the interest charged on that loan while keeping the funds accessible.

When a Bridging Loan Makes Sense

If you've found a property to buy before your current home has sold, a bridging loan lets you settle the purchase without waiting for your sale to complete. The lender uses the equity in your existing home as security and advances funds to cover the new purchase. Once your original property sells, the bridging loan is repaid from the sale proceeds.

Bridging finance makes sense when the property you want to buy won't wait, or when selling before you buy would mean temporary rental accommodation or storage. It's a short-term solution, usually structured for six to twelve months, with interest capitalised or paid monthly depending on the lender.

In our experience, downsizers in Kew often use bridging finance when moving into a new apartment development with a fixed settlement date, or when purchasing a townhouse in a competitive price range where subject-to-sale offers aren't accepted. The cost of bridging is offset by the certainty of securing the right property without compromise.

Structuring a Home Loan to Keep Your Options Open

Even if you don't need to borrow the full purchase price, some downsizers choose to retain a small loan with an offset account rather than paying cash outright. The loan gives you access to redraw or offset features that keep your equity accessible while reducing the interest you pay.

A loan structured this way can also protect your borrowing capacity if you plan to purchase an investment property later, or if you want to help adult children with a deposit. Lenders assess your ability to service a loan based on income, and closing all credit facilities can make it harder to borrow again in future, particularly if you're moving into retirement with reduced income.

This approach works well for downsizers who want liquidity without holding large amounts of cash in a standard savings account. The offset account linked to the loan reduces interest charges to nearly zero if the balance is high enough, while the loan itself remains available for future use.

Stamp Duty and Capital Gains Tax Considerations

Stamp duty in Victoria is charged on the purchase price of your new property and is calculated using the standard rates that apply to all residential purchases. If you're buying an apartment or townhouse in Kew under the property price cap, you won't qualify for first home buyer concessions, but you also won't face any additional charges for being a downsizer.

Capital gains tax doesn't usually apply to the sale of your main residence. If the home you're selling in Kew has been your principal place of residence for the entire period of ownership, the gain is exempt. If part of the property was rented out or used for business purposes, a partial exemption may apply. The ATO provides a main residence exemption that covers most downsizers, but it's worth confirming your position with an accountant before you exchange contracts.

How Lenders Assess Downsizers with Reduced Income

If you're retired or semi-retired, lenders will assess your loan application based on your current income, which may include superannuation drawdowns, rental income, and dividends. Some lenders allow you to use a portion of your liquid assets as evidence of servicing capacity, particularly if the loan amount is low relative to the property value.

A downsizer applying for a loan amount of $200,000 to purchase a property while retaining equity in offset can usually demonstrate servicing capacity through a combination of pension income and savings, even without full-time employment. Lenders vary in how they assess retirement income, and working with a broker who understands these policies can make the difference between approval and decline.

Timing the Sale and Purchase to Avoid Holding Costs

The timing of your sale and purchase determines whether you need bridging finance, temporary accommodation, or a delayed settlement. Selling first gives you certainty over the funds available but may require you to rent short-term or move twice. Buying first gives you control over where you're moving but requires bridging finance or a long settlement period on your sale.

Most downsizers we work with in Kew prefer to secure the new property first, particularly when moving into apartments or townhouses in high-demand areas near the Yarra Boulevard or around Studley Park. A bridging loan or extended settlement on the sale gives you time to move at your own pace without the pressure of a rental lease or storage deadlines.

Retaining Flexibility with Loan Features

If you're taking out a loan as part of your downsizing transaction, the features you choose will determine how much flexibility you have once you've settled. An offset account, redraw facility, and portability all serve different purposes, and not every loan product offers all three.

Portability allows you to transfer the loan to a different property if you move again. Redraw lets you access any extra repayments you've made above the minimum. An offset account keeps your savings separate but linked, reducing the interest charged without locking the funds into the loan itself. For downsizers who want to keep their equity accessible, offset is usually the better option.

You can compare how different home loan options handle these features by speaking with a broker who has access to lender policies across multiple providers. Not all features are available on all loan products, and some come with higher interest rates or annual fees.

When Refinancing Your Existing Loan Makes Sense Before You Downsize

If you currently have a mortgage on your family home and you're planning to downsize in the next six to twelve months, it may be worth refinancing now to access equity or secure a lower interest rate before your employment or income changes. Lenders assess your application based on your circumstances at the time you apply, and refinancing while you're still working can give you more options than waiting until after you've retired.

This is particularly relevant for downsizers who want to retain an investment loan or purchase a second property after the move. Refinancing before you downsize can increase your approved limit or establish the loan structure you'll need later, without the complexity of proving servicing capacity on a reduced income.

Call one of our team or book an appointment at a time that works for you to talk through your downsizing plans and get a clear picture of how your loan should be structured for the move.

Frequently Asked Questions