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More Australians are turning to reverse mortgages to ease income pressures in older age, according to brokers.
With more reports showing that Australians are increasingly concerned about income during retirement – and many still holding a mortgage at retirement age – brokers have reported a growing volume of inquiry and demand for reverse mortgages.
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According to the recently released MFS Investment Management’s 2024 Global Retirement Survey, more than half of Australians said that saving enough money for retirement was a major financial concern.
The survey found that 75 per cent of superannuation fund members agreed they needed to save more than planned and only 23 per cent were very sure they’d be able to retire at the age they wanted, down from 26 per cent in 2023.
Around half of Australian respondents said managing day-to-day financial obligations was their top concern, according to the survey.
This is compounded by the fact that more borrowers are reaching retirement age while still owing money on their mortgage.
Speaking to The Adviser, reverse mortgage broker, Darren Moffatt (managing director of Seniors First), said growing concerns about retirement income meant the reverse mortgages market has been “booming”.
“It’s very busy, and we’ve seen that it’s really picked up in the last three years,” he said, noting that he had grown his brokerage from seven staff to a team of 17 staff over the past two years in order to keep pace.
“Certainly the cost-of-living crisis that’s come about through inflation is a big thing driving this.
“There’s also, in terms of demographics, a big shift in the way we will get to retirement. When I started this business 18 years ago, most people who took a reverse mortgage didn’t owe any money on their property. Now that’s really changed… at an aggregate level, people are retiring with more debt than they were. We’re seeing a lot of people get to retirement and still have a couple of hundred thousand dollars left on their home loan.”
While he noted that the government had been working to increase financial options for older Australians (for example by accessing additional payments through the Home Equity Access Scheme, previously known as the Pensions Loan Scheme), he said that its qualifying criteria were limited and weren’t suitable for those retiring with quite large debt against the property.
“They can’t service that out of a pension or a limited income, so one way to deal with that problem is to refinance it into a reverse mortgage. And we’re seeing a lot of that happen,” he said.
According to the reverse mortgage broker, the fact that house prices have grown rapidly over the past five years has also driven more borrowers to consider reverse mortgages.
He said that while retired Australians had traditionally dominated the reverse mortgage market, younger Australians are also seeking reverse mortgages.
“There are three subsets of borrowers: the younger subset, who are 55 to 65 [years old] and are still working/have income (or a clear plan of what they’re going to do in the medium, short to medium term), who might want a reverse mortgage as a ‘stop gap’ solution, where they’re going to pay it down just like a normal home loan. We see a lot more of that now,” he said.
“The middle group is aged 65-75. Some of these people will make payments, but most of them won’t, and most of them want to have access to funds for future needs. So they like a cash reserve or a flexible drawdown facility where they’ve got the money on call but don’t pay interest on it unless they use it. Around 78 per cent of our clients want that feature.
“The older subset is aged 75-plus. They often have a different need again. They might want to fund home care or aged care. They might want to do the house up before they sell it.”
However, he said that brokers writing reverse mortgages need to be “very cognisant” of the higher duty of care required when writing this loan product, particularly when it comes to looking after potentially vulnerable borrowers/those who may be experiencing financial coercion or elder abuse, as well as considering mental capacity.
Moffatt said that Seniors First requires brokers to go through 54 hours of training for its onboarding program.
The broker said: “It’s the most heavily regulated credit product in Australia. There’s no question about that. But on the positive side, it is very rewarding. You really get to hear lots of amazing stories. And you see the impact of the work. Often, someone might have been struggling for many months, or even years, on very limited incomes, and then through releasing some home equity via reverse mortgage, it transforms their life.
“So, it’s a great space to get into, but you must invest in the training.”
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