Increasing popularity for reverse mortgages in Australia has the potential to allow more retirees to adequately fund their post-working lives, but some potential borrowers are being blocked from pursuing reverse mortgage solutions in the country as banks are exiting the space.
A 6.5 percent increase in New Zealand-based Heartland Bank’s recorded profits was bolstered by a 24.9 percent increase in its Australia-centered reverse mortgage business, which Heartland CEO Chris Flood attributes in a recent report to increasing awareness of the product along with a deeper broker channel.
The fluctuating Australian reverse mortgage market
“Australia is a more competitive market, and we have been the only player advertising [in New Zealand] for a while,” Flood told MortgageRates.co.nz. “It also comes down to broker driven-business. Brokers are a bigger part of the Australian market, and retirees are going to them to help solve their problems.”
However, the exit of some prominent financial institutions in Australia from the reverse mortgage space could be contributing to growing income inequality among older Australians, according to a report at the Sydney Morning Herald.
As many as 80 percent of Australians own their own homes. However, a white paper released by Australian financial firm Household Capital says that the economy has failed to fund the retirements of older homeowners. Its findings are backed by former government officials, along with think tank Per Capita founder and Household CEO Dr. Joshua Funder.
“Despite high levels of median wealth in Australia, retirees experience high levels of relative poverty because they can’t access the equity in their homes,” the Herald report reads. “Many have only made compulsory superannuation contributions since 1992.”
“Superannuation” refers to arrangements made by the Australian government to compel employers to put away funds over the course of their employees’ working lives, akin to American 401K programs. This provides them with an income stream in retirement, according to the Australian Taxation Office. While some superannuation funds are compulsory, the government further encourages voluntary individual contributions by providing tax benefits to the Australian citizens who pay into the program.
The strain on superannuation funds in Australia is likely to increase in the coming years, as more people born between 1946 and 1964 are reaching retirement at an increasing pace. “Treasury expects the number of people aged between 65 and 84 years to reach 7 million by 2054,” the Herald report reads. A 2019 Australian Bureau of Statistics estimate places the country’s total population at over 25 million.
While the industry in Australia is growing, the overall reverse mortgage market in Australia has remained relatively stagnant. The past year has seen prominent organizations exit the space, including the nation’s largest financial institution, Commonwealth Bank. Other players that have recently removed reverse mortgage offerings from their product catalogs include Westpac Banking Corporation and Macquarie Group.
To address these growing difficulties for Australian retirees, the country’s retirement income policy needs to add to its existing superannuation, non-superannuation savings and age pension pillars, the white paper recommends. “Home equity [should be a fourth pillar], which would also allow retirees to opt to stay in their own homes longer,” the Herald report reads.
A new player enters
Australian financial institution Household Capital has made calls previously for the government to make reforms to its retirement programs. Household also recently announced its own home equity product for retirement funding or income enhancement, according to a report from NestEgg.com.au.
Funding retirement and care needs would be far easier for retirees to accomplish if equity was more easily accessible, said Joshua Funder in his capacity as Household Capital’s CEO. “Most people could easily fund their own in-home care if they had access to equity,” he told the Herald.
Funder dismissed the impact of proposals to change the retirement program on inheritance, telling the Herald that longevity of the boomer generation was more of a pressing issue compared with any hits on heirs’ potential inheritance.
“What has disinherited the kids is baby boomers living to 95,” he said. “Kids get the money when they are 75 and [by then] it’s too late.”