For the countless Aussies who bought their home decades ago that now sits empty after their kids flew the nest, the temptation to cash in on booming house prices is burning strong.

Cotality put the nation’s median house price at $920,003 in August 2025 – and cracking the $1 million mark ($1,056,440) for our capital cities. Coupled with this, three interest rate cuts this year with expectations of more to come are putting further upward pressure on prices.

But the decision to downsize is not based on sale price alone. In fact, it has far-reaching implications on your personal finances, tax situation, pension eligibility, relationships with family and quality of life in retirement.

While by no means an exhaustive list, the following form the major benefits and drawbacks that should be weighed up as part of your decision-making.

Pros of downsizing

There are numerous advantages from downsizing your home:

  • Unlocking equity – the longer you’ve owned it, the more equity you likely have; money (probably a lot of it) that is otherwise sitting idle.
  • Forgoing reverse mortgages – the alternative to selling to access equity is a reverse mortgage. Yet these have many hidden traps, including higher interest rates, inflexible restrictions, and reduced inheritances for family. In most cases, downsizing is a wiser option.
  • Boosting superannuation – eligible people can contribute up to $300,000 of the sale proceeds into super. You must be over a certain age and meet other eligibility criteria, and you can only make a downsizer contribution once, so make it count.
  • Supporting family – surplus funds from the sale can benefit loved ones through early inheritances or assisting adult children with a home deposit if you can afford to.
  • Cutting living expenses – a smaller property generally means lower energy bills and maintenance costs.
  • Rightsizing your home – without a big house to clean and gardens to maintain, you will free up time for grandkids, travel and hobbies.
  • Decluttering – downsizing forces you to take only what you really need and want, and get rid of the rest.
  • Doing good – amidst the current housing shortage, downsizing (especially from an established suburb close to schools) means you’re freeing up much-needed space for another family to grow.
  • Getting in early – you will probably need to downsize at some stage, so better to do it now while you’re younger and healthier. Doing so before retiring also means you can use employment income, rather than retirement income, to pay the moving costs.

Cons of downsizing

Alas, there are two sides to every coin. However, some downsizing drawbacks need not be painful if they are properly planned for in advance:

  • Buying high – yes, you’re selling when property prices are high, but depending on where you buy, you’re also purchasing your next home at a high point.
  • One-way transition – if you sell out of a major city for a regional change, you may be priced out and unable to return should your health deteriorate or your move isn’t all you hoped for. Or if your downsize proves to be too extreme, it can be difficult to find a bigger home again within your budget.
  • Rental shortages – a shortfall of rental properties makes it difficult to ‘try before you buy’ in a seachange or treechange location.
  • CGT – if the property was ever used to generate income, you may have to pay Capital Gains Tax (CGT).
  • Pension impacts – equity in your home is exempt from the pensions means test. By downsizing, whatever money isn’t used to purchase your new home is now assessable.
  • Mortgage exit costs – paying out any remaining mortgage early may incur hefty exit fees, especially when breaking a fixed-rate loan.
  • Temptation to splurge – if you aren’t disciplined with money, it can be tempting to spend freely instead of using the sale proceeds wisely. Once it’s gone, it’s gone for good.
  • Increased super taxes – making a downsizer contribution could push you over the $3 million threshold for the planned 30% tax rate on superannuation balances.
  • Moving costs – stamp duty, agent and conveyancing fees, buying and selling expenses, and removalist costs are unavoidable outgoings to budget for as part of the process.

Weighing your options

Ultimately, the right time to downsize is unique for everyone. If you have the desire or need, a tailored strategy for housing and financial security in retirement, and protections in place should things not go to plan, then now may be your ideal time.

Be sure to get professional advice from your financial advisor, so as to minimise the risks and maximise your financial outcomes. And discuss things with your family – their support and assistance can help make or break the whole downsizing process!

Helen Baker is a licensed Australian financial adviser and author of the new book, Money For Life: How to build financial security from firm foundations (Major Street Publishing $32.99). Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au

Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.

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