Government-backed reverse mortgages are becoming increasingly popular with older Australians as the cost-of-living rises.
Following changes to Centrelink’s Home Equity Access Scheme that came into force in July 1, participants in the scheme can now take an advance payment of their loan rather than an income stream.
The changes have given older Australians a flexible and secure way to supplement their retirement income after banks and other lenders have largely ceased issuing their own reverse mortgages.
A reverse mortgage allows people over 60-years-old to access some of the equity tied up in their home, helping them fund a more comfortable retirement. Importantly, with a reverse mortgage a person continues to own and live in your home and community for as long as they choose.
According to a report in The Age, Services Australia saw a spike in participants joining the government scheme over the last three years (rising from 768 in 2019 to 6041 today)
Services Australia said more retirees are expected to apply for the scheme as the cost-of-living rises.
Prior to 2019, participants in the scheme could draw a fortnightly income up to the full pension rate, including any pension payments, making it effectively only available to part pensioners and some self-funded retirees.
From July 2019, borrowers could borrow to fund a fortnightly income of up to 150% of the full pension rate.
Speaking to The Age, Consumer Action Law Centre chief executive Gerard Brody said he is not surprised that asset-rich, cash-poor retirees are choosing a lump sum instead of an income stream.
“The reality is there’s a lot of wealth tied up in housing in Australia and people are looking at ways to use that wealth during their lifetime. I can see why this is an option that people are considering,” he said.
Government-backed reverse mortgages are one of the last remaining paths for retirees to access home equity since the commercial banks have largely discontinued their reverse mortgage schemes
The banks reported that these mortgages had “not lived up to expectations,” said Canstar finance advisor Steve Mickenbecker.
He said many other providers pulled away from reverse mortgages during the global financial crisis because they were too expensive to operate.
He added that the market had not recovered and was unlikely to do so given rising interest rates would make the debt compound faster and may cause the value of the property to fall.
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