How downsizers can secure their next home without selling first

For many downsizers, finding the apartment they want to move into is only one part of the equation.

The other is timing.

Buying off the plan can mean securing a future home several years before it is ready to move into, creating a potentially awkward gap between committing to the next property and selling the family home they may have lived in for decades.

For Stephen and Elizabeth, that gap was going to be around two years.

The couple had decided it was time to leave their large three-storey family home and had found an off-the-plan apartment in St Leonards on Sydney's Lower North Shore that suited the next chapter of their lives.

It was close to family, kept them within their existing community and, importantly, wasn't due for completion until 2028.

"We are rattling around in a big three-storey house," Stephen says. "We thought it was time to downsize while we've still got our joints intact."

The apartment was priced at $5.575 million, with a $575,000 deposit due at exchange.

The couple had the wealth to complete the purchase, but much of it was already working for them elsewhere. They hadn't sold their current home, didn't want to sell their investment properties and initially thought they would need to withdraw money from superannuation to fund the deposit.

Instead, they used a deposit bond to secure the apartment.

It meant they could commit to their new home while leaving the $575,000 invested and, just as importantly, continue living in their existing home until much closer to the completion of their new apartment in 2028.

According to Nick Rumpff from Deposit Power, that disconnect between wealth and readily available cash is common among downsizers.

"Downsizers are often asset-rich, cash poor, or they just don't have that cash sitting in their account ready to hand over," Rumpff says.

It can leave buyers considering whether they need to sell their existing home earlier than they would like, refinance, withdraw money from superannuation or investments, or take funds from an offset account simply to meet the deposit on a property that may not settle for several years.

A deposit bond provides another option.

Rather than paying the cash deposit at exchange, an eligible buyer pays a one-off fee for a financial guarantee covering the deposit. The purchaser remains responsible for paying the full purchase price at settlement.

For downsizers, the attraction is not simply avoiding a cash deposit. It is being able to decide what happens to their capital between exchange and settlement.

That might mean remaining in the family home until the new apartment is approaching completion rather than selling years earlier. For another buyer, it could mean leaving money in an offset account where it continues to reduce home loan interest. Others may prefer to leave the capital invested in superannuation or elsewhere.

For Stephen and Elizabeth, the comparison was relatively straightforward.

"I'd heard of deposit bonds, but I didn't fully understand how they worked," Stephen says.

"Once I did the maths, I realised the returns I expected to earn by keeping my money invested in super outweighed the one-off cost of the deposit bond. It was a no-brainer as far as we were concerned."

The potential benefit can become more significant when an off-the-plan purchase has a long settlement period, although the equation will differ for every buyer depending on the cost of the bond, the size of the deposit and what the retained capital would otherwise be doing.

Money sitting in an offset account, for example, may continue reducing interest costs for several years. Capital remaining invested may continue generating returns, although those returns are not guaranteed. For a downsizer whose deposit would otherwise be funded by selling their existing home, the value may instead be the flexibility of choosing when to sell.

Deposit Power's savings calculator allows buyers to compare the cost of a deposit bond against the potential financial benefit of retaining their deposit elsewhere until settlement.

The numbers are only part of the equation.

One of the advantages of buying off the plan for downsizers is time. A purchaser can choose their future home well before they need to physically move, giving them several years to prepare the family home for sale, sort through belongings and plan the transition into an apartment.

Having to sell the existing home simply to fund the deposit can undermine some of that flexibility.

A deposit bond can separate the two transactions. The next home can be secured now, while the sale of the existing home can occur closer to when the new apartment is actually ready.

For buyers considering whether their existing home would need to be used as security, Deposit Power also does not take a lien over the property. Instead, its assessment looks at whether the buyer has sufficient equity to support the bond, with approval typically issued within 24 hours.

That does not mean a deposit bond will necessarily be the right option for every downsizer. There is a fee involved, individual financial circumstances vary and buyers need to compare that cost against the potential benefit of keeping their money where it currently sits.
The decision can be particularly important when buying off the plan because the period between exchange and settlement can run for several years.

For Stephen and Elizabeth, the process proved considerably simpler than they initially expected.

"It was approved the next day," Stephen says. "Quite painless. It's possibly the best financial dealing I've ever had."

The outcome is that the couple have secured the St Leonards apartment they intend to move into in 2028 without having to reorganise their finances years ahead of schedule.

Their $575,000 remains invested, their existing home does not need to be sold simply to fund the deposit, and they can approach the move on their own timeline.

"I'd definitely recommend a deposit bond to anyone looking to downsize or buy off the plan," Stephen says, "because you save money and the whole process is very simple."