Researchers at the University of New South Wales (UNSW) Business School in Sydney, Australia announced that they’re going to be studying behavioral and financial issues related to the reasoning behind the sluggish pace at which reverse mortgages have been adopted across that country.
UNSW Senior Research Fellow Dr. Katja Hanewald and Professor Hazel Bateman will investigate “theoretical and empirical aspects of reverse mortgage demand and product design,” according to the project’s announcement. The duration of the study is expected to last two years.
“While economic theory predicts that households would demand reverse mortgages to improve retirement funding, the take-up rates for reverse mortgages are low in Australia and internationally,” said Dr. Hanewald in the announcement.
When reached for additional comment via email, Dr. Hanewald clarified for RMD that the scope of the project draws upon data from international sources, including the United States.
“A growing international literature in economics analyses ‘rational’ factors that could contribute to the reverse mortgage puzzle, such as bequest motives, as well as debt aversion and financial illiteracy,” Dr. Hanewald told RMD in an email. “Our project will explore the impact of behavioural factors, specifically the role of mental accounting and framing, as an alternative explanation for the ‘reverse mortgage puzzle.’”
Still, Hanewald clarified for RMD that while some American data is being used, her familiarity rests far more with the Chinese reverse mortgage product when compared to other international offerings.
UNSW Business School is engaging into the study with Household Capital, a company that offers services to enable older Australians to combine their government-sponsored superannuation payment, pensions and home equity to provide funding for retirement. Household also recently announced its own home equity product for retirement funding or income enhancement, according to a report from NestEgg.com.au.
In addition to investigating the financial factors that have led older Australians away from engaging in reverse mortgage transactions, the researchers will also explore the impact of behavioral factors in an attempt to explain why reverse mortgage demand has been depressed.
“Combining our research track record and Household Capital’s industry expertise, we will design and field test an online experimental survey to study the role of mental accounting in the demand for reverse mortgages,” Dr. Hanewald said in the press release. “By investigating behavioural explanations to the ‘reverse mortgage puzzle’, this research will address demand- and supply-side barriers to further development of a reverse mortgage market in Australia and internationally.”
One possible source of depressed reverse mortgage demand in Australia centers on the recent exit of major banks from the space, including the nation’s largest financial institution, Commonwealth Bank. Other domestic Australian players that have recently removed reverse mortgage offerings from their product catalogs include Westpac Banking Corporation and Macquarie Group.
Read the study’s official announcement.