“These changes provide more options and greater flexibility for users of the scheme and are expected to increase the number of older Australians choosing to participate.”
Reverse mortgages let older home owners borrow money secured against their property. If they don’t make payments, the debt compounds and is paid when the property is sold or the borrowers die. Commercial loans taken out since 2012 have a no negative equity guarantee, meaning borrowers cannot owe more than the value of their stake in their home, and this safeguard was also added to the government scheme this month.
Prior to 2019, participants in the government scheme could draw a fortnightly income up to the full pension rate, including any existing pension payments, making it effectively only available to part pensioners and some self-funded retirees. From July 2019, borrowers were able to borrow to fund a fortnightly income of up to 150 per cent of the full pension rate.
Meanwhile, figures from the Australian Prudential Regulation Authority show the continuing decline of the commercial market. The value of outstanding reverse mortgage loans held by banks, building societies and credit unions fell to $2.21 billion by the end of March 2022, an 18 per cent fall from $2.7 billion from the same period in 2019.
In 2019 the Commonwealth Bank and its subsidiary Bankwest were the last of the big banks to exit the reverse mortgage market for new loans, but the products are still offered by a handful of smaller lenders charging 6 to 7 per cent interest a year.
Comparison site Canstar says lenders offering reverse mortgage loans include Household Capital, Heartland, IMB, P&N Bank, G&C Mutual Bank and Gateway Bank.
Steve Mickenbecker, a finance expert at comparison site Canstar, said commercial reverse mortgages had not lived up to expectations.
“Reverse mortgages were developed with great hope that they would provide the financial solution for asset-rich, cash-poor retirees to fund the retirement lifestyle they aspired to,” he said.
But Mickenbecker said early offerings in the reverse mortgage market delivered adverse outcomes to customers and while this was largely fixed by regulation, it still came with “significant trade-offs and some risk to the borrower”.
He said many providers withdrew from the reverse mortgage market during the global financial crisis because they were expensive to run, with an uncertain time frame. The market had not recovered, and it was unlikely to do so given rising interest rates would make the debt compound faster and may cause the value of the property to fail.
Deb Shroot, a financial counselor with the National Debt Helpline, said she sometimes recommended the Centrelink scheme to clients, adding it worked similarly to hardship programs run by councils to allow older people to defer their rates.
“If these forms of loans or hardship [schemes] are enabling people to stay in their homes longer, if that’s what they want to do, then they can be a really good option for people so long as they’re going through adequate checks to make sure that they’re suitable and then not charging an unaffordable interest,” Shroot said.
Shroot said the main reasons why older people rang the National Debt Helpline included credit card debts where they had only ever paid the minimum balance, utilities and energy bills and the rising cost of living generally, and unaffordable rates and strata debt.