Mortgage brokers are seeing a flood of customers approaching them for reverse mortgages, with Australia’s aging population turning to this specialty lending product to battle the cost-of-living crisis.
What are Reverse Mortgages?
Reverse mortgages can assist older homeowners who are struggling with cash flow to leverage the equity in the homes they own that have increased in value over the years. Lenders can provide loans to these customers against the equity in their homes, which is used as security.
The popularity of reverse mortgages has really taken off since the federal government’s Home Equity Access Scheme (HEAS) became more available to eligible recipients in 2019.
Why are Reverse Mortgages Becoming Popular?
“A large portion of the population, the Baby Boomers, are reaching retirement age, and they have a lot of their wealth tied up in their homes,” Money Links managing director Brenden Lowbridge told Australian Broker.
“They need to unlock that equity.”
A reverse mortgage can provide older borrowers with funds without them having to take out a lower-interest short-term loan that requires repayments.
The government’s own reverse mortgage scheme (HEAS) had more than 12,000 participants at the start of 2024, and commercial lenders are also reporting strong increases in demand.
Senior credit adviser at Flint brokerage Andrew Dihm summed it up perfectly when he spoke to Australian Broker:
“People are living longer and have exhausted their superannuation fund and have no income, but they’re sitting on this house that’s worth millions of dollars.”
Benefits of Reverse Mortgages
With the younger generations struggling to get their foot in the door of the property market, reverse mortgages are also giving older Australians the opportunity to provide funds to them for a home deposit of their own.
The government’s HEAS is well-suited to smaller loans, but customers looking to borrow larger amounts are best suited to commercial reverse mortgages from smaller lenders that have fewer restrictions.
Interest rates on these commercial reverse mortgages are higher, but borrowers are not required to repay the loan until they either sell up or pass away.
Risks of Reverse Mortgages
The effect reverse mortgages can have on inheritances, uncertainty around house price gains, and the high cost of interest payments means reverse mortgages can be risky and are not for everyone.
“They’re very niche. If used correctly, they could fill a void,” Mr. Lowbridge told Australian Broker.
“Some retirees are ready and willing to downsize. But others don’t want to sell their house and move.
“So it’s a needed product for that reason.”
