Reverse Mortgage Adoption Rate Doubles in Australia Due to Pandemic

Government-sponsored reverse mortgages in the nation of Australia have been increasing significantly ever since the economic impacts of the COVID-19 coronavirus pandemic began straining the finances of that nation’s retirees, with adoption of the so-called “Pension Loans Scheme” (PLS) outpacing the government’s expectations for the program that were introduced in the 2018-19 national budget. This is according to original reporting at the Sydney Morning Herald.

“From July last year, the scheme was expanded so that almost anyone of pension age is able to borrow against the value of their house or investment property,” writes Herald reporter John Collett. “Administered by Centrelink, the PLS had more than 3100 participants in the 2019-20 financial year, compared to fewer than 800 in the same period a year earlier,” according to reference figures.

The level of adoption being seen in Australia is more than twice what the government expected it to be when it announced the PLS expansion in the unveiling of the federal budget two years ago.

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“As well as being of pension age, participants need to put-up a property – either the home they live in or a[n] investment property – as security for the reverse-mortgage,” Collet describes. “There is also scope to borrow against a property that has an outstanding mortgage, as assessed on a case-by-case basis by Centrelink. PLS participants are able to draw down an income stream of up to one-and-a-half times the maximum Age Pension, plus supplements, even if they do not qualify for a pension.”

“Centrelink” refers to the Centrelink Master Program, a division of government agency Services Australia which oversees certain welfare, health and other services to eligible Australian citizens and permanent residents. Services Australia was formerly known as the Department of Human Services.

Unlike the American reverse mortgage program, the only cost to a borrower in the PLS is legal fees, but loan proceeds are similarly not counted as taxable income.

“I think it is a great scheme,” says Brendan Ryan, a financial adviser and founder of Later Life Advice based in Manly, New South Wales just outside of Sydney. “For older Australians already receiving an Age Pension, the process of applying for [the scheme] is quite straightforward and processing times are getting shorter.”

Ryan says the potential benefits to the program make the increasing adoption rate unsurprising, according to the story.

Earlier this year, a lender in Australia who offers reverse mortgages to local area seniors completed a reverse mortgage-backed securitization, saying that it is the first of its kind in the market.

Read the article about the increase in reverse mortgage business in Australia at the Sydney Morning Herald.

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