Parents downsizing. Financing Question

Hi,

My parents are wanting to downsize from their current house and I have some questions on their behalf.

They are both 67, fully retired. Dad is on a good defined benefits scheme (government) and has a gross income of around $70k. They own two new model cars outright, and have a caravan with about a $10k loan. Both very active and healthy. They have about $15K available for a deposit.

They own a house in a regional Victorian town outright, and are in the process of putting it on the market. I would assess it to be in the mid $300k mark.

They plan to sell up and move to Bendigo because it is closer to other family. They are after something smaller, but still a house, and we assess that in Bendigo, that puts them in a mid to high $300k mark, so they will probably need a small amount of finance if they sell their house first and then subsequently buy (maybe 50 or 60 thousand, depending on what they get).

I think this is probably a reasonable chance to do some equity release for them, so that they have more money in retirement, using a higher loan and an offset, but not sure if they will be comfortable with that.

So my question is, are there any option available for them to start offering on houses in the new location using the existing equity in their house, or are they just better off making their offers 'subject to the sale of their existing property'?

Are they likely to be able to get a loan under these conditions, and would it be worthwhile dealing with a broker for this sort of arrangement?

Regards
Murphy
 
This could be an interesting scenario depending on your Dad's income and how it's structured...

My initial thought was, with a pension, it's fairly difficult to show that you can afford to borrow money (at all), but a defined government pension could change this a bit. If it can be verified as an ongoing pension of $70k, this should be enough money to show that they can afford to borrow against their equity and then purchase a property.

Banks are fairly cautious about lending money to retirees, because they don't want to be in a position where they have to sell their home in order to pay off the loan. In this case however, they're able to sell an existing property. I'd suggest that a loan application needs to show what their financial position will look like if they can't sell their existing home and have to rent it instead as an investment property after they move. Ideally though, they want to be able to show the bank their primary exit strategy will be to sell their current house and pay off the existing one in full.

Subject to confirming your Dad's pension, it looks like there's a way of getting this done. It would probably be tricky, but I've seen it work for people in their 70s.
 
Hi Murphy,

Buying subject to finance is a lot stronger an offer than buying subject to sale.

where are you looking in Bendigo? Might find $300k is an achievable price point?

Ben
 
Has your father contacted the superannuation company to see if he can take a lump sum and consequently a lower pension? This would free up some capital to make the move.
Marg
 
Hi all, thanks for the responses.

Marg, I don't think a lump sum is achievable, he has been retired for some time, and its a defined benefit system, so there isn't really a superannuation amount available to him, he just gets somewhere around $75K pa as long as he (or my mother) are alive.

Ben,

I think they are looking in the $330 to $350 price point, which certainly seems a good price point in Bendigo. I agree, that buying subject to sale of another property isn't a good bargaining position. They have just placed their current property on the market, and they do have the luxury of waiting for it to sell (they are grey nomads now, so once the house sells, they are happy with their caravan for a few months while waiting to find the right place in Bendigo).

PT_Bear, thanks for the feedback, I will pass on your details when they start to consider an application.

Regards
Murphy
 
Murphy,

Drop them my number if they need a local opinion on a place they are looking at. Happy to help.

Ben
 
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