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Young homeowners are more likely to use their home as an ‘ATM’ than their Boomer parents. Here’s why

<div class="theconversation-article-body"><a href="https://theconversation.com/profiles/rachel-ong-viforj-113482">Rachel Ong ViforJ</a>, <a href="https://theconversation.com/institutions/curtin-university-873">Curtin University</a> and <a href="https://theconversation.com/profiles/christopher-phelps-378137">Christopher Phelps</a>, <a href="https://theconversation.com/institutions/curtin-university-873">Curtin University</a> For many Australians, the family home is their largest financial asset. With an increasing variety of ways to tap into home equity, the temptation to access this wealth is ever growing. Homeowners increase the debt owed on their home when they borrow against their <a href="https://doi.org/10.1080/02673037.2013.783202">equity</a>. Standard mortgage home loans now provide facilities for relatively cheap or free withdrawals of equity from the home. This turns the <a href="https://theconversation.com/your-home-as-an-atm-home-equity-a-risky-welfare-tool-22000">home into an ATM</a>, which borrowers can access when they choose. Our new <a href="https://doi.org/10.1080/02673037.2024.2400158">study</a> asks what motivates Australians to tap into their home equity, and how does this behaviour change with age? Surprisingly, despite having much lower housing equity levels, younger homeowners borrow often, and borrow more, than their Boomer parents. <h2>How common is equity borrowing?</h2> Using 15 years of data from the government-funded <a href="https://melbourneinstitute.unimelb.edu.au/hilda">Household, Income and Labour Dynamics in Australia </a>(HILDA) survey, we tracked the mortgage debt and repayments of homeowners aged 35 and over. The chart below shows younger owners are far more likely to engage in equity borrowing. In 2006, nearly 39% of the youngest homeowners, aged 35–44, borrowed against their home equity. By 2021, this number had dropped to 29%. Despite the decline, it’s still 24 percentage points more common than those aged 65 and over. The older group has remained steady at about 5% over the years. <hr /> <iframe id="Ll9Cw" class="tc-infographic-datawrapper" style="border: 0;" src="https://datawrapper.dwcdn.net/Ll9Cw/" width="100%" height="400px" frameborder="0" scrolling="no"></iframe> <hr /> <h2>How much do equity borrowers withdraw from their home?</h2> Among those who use their home like an ATM, younger borrowers now withdraw larger amounts than older borrowers. In 2006–07, equity borrowers aged 35–44 and 45–54 withdrew on average $43,000 and $57,000, respectively (expressed in real values set at 2022 price levels). By 2021, the amount withdrawn by these two age groups had climbed to $70,000 and $100,000. On the other hand, the amount withdrawn by borrowers aged 55 or older fell from more than $50,000 to less than $40,000. <hr /> <iframe id="ujq3S" class="tc-infographic-datawrapper" style="border: 0;" src="https://datawrapper.dwcdn.net/ujq3S/" width="100%" height="400px" frameborder="0" scrolling="no"></iframe> <hr /> <h2>What motivates equity borrowing?</h2> Young homeowners’ equity borrowing behaviours are sensitive to changes in house prices and debt values, and their financial risk preferences. Among those aged 35–44, a $10,000 increase in the primary home value raises the likelihood of equity borrowing by ten percentage points. Every $10,000 in debt against the primary home reduces the likelihood by 2.8% percentage points. Those willing to take substantial financial risk are eight percentage points more likely to borrow against their home than those who are risk-averse. Those aged 65+ are not inclined to borrow, and exhibit little change in equity borrowing behaviour with variations in asset, debt, income or financial risk preferences. <h2>Why borrowing practices differ between age groups</h2> As well as being more likely than older homeowners to borrow against equity, the younger group also withdraws higher amounts than their Boomer parents. This is despite younger borrowers already carrying much higher debt against their primary home. Among those in our study who engaged in equity borrowing in 2021, the median debt before borrowing was $401,000 for 35-44 year-olds compared to $0 for those aged 65+. As real house prices have risen over decades, the current generation of young homeowners has had to invest more money into purchasing their first home than previous generations. It’s therefore not surprising the primary home is now widely viewed as a financial resource to be <a href="https://theconversation.com/your-home-as-an-atm-home-equity-a-risky-welfare-tool-22000">tapped into to meet spending needs</a>. On the other hand, most Baby Boomers bought their first home at more affordable prices than their children, and at lower levels of debt. Now they don’t appear to be spending their kids’ inheritance by drawing down housing wealth. In fact, older parents may shy away from equity borrowing to <a href="https://www.pc.gov.au/research/completed/wealth-transfers/wealth-transfers.pdf">bequeath wealth to children</a>. Some also <a href="https://doi.org/10.1017/S0047279417000058">dislike passing debt</a> on to their children. Older people may also avoid equity borrowing due to concerns about <a href="https://treasury.gov.au/sites/default/files/2023-08/p2023-435150.pdf">aged care costs</a>. Some may be hampered by <a href="https://doi.org/10.1016/j.jue.2013.08.003">poor financial literacy</a>. <h2>More debt ahead without policy changes</h2> Present trends suggest young homeowners will remain indebted for longer periods, and more and more will <a href="https://theconversation.com/more-of-us-are-retiring-with-mortgage-debts-the-implications-are-huge-115134">retire with mortgage debt</a>. For indebted retirees, there are real prospects of <a href="https://theconversation.com/fall-in-ageing-australians-home-ownership-rates-looms-as-seismic-shock-for-housing-policy-120651">drawing down of superannuation</a> to pay off mortgages in retirement. This may impose extra burdens on the age pension system. Another unwelcome consequence, which may add to health costs, is the prospect of <a href="https://www.ahuri.edu.au/sites/default/files/migration/documents/AHURI-Final-Report-319-Mortgage-stress-and-precarious-home-ownership-implications-for-older-Australians.pdf">debt-related psychological distress</a> among those who can’t pay off their mortgage in old age. If the current trends continue, the <a href="https://www.afr.com/policy/economy/what-happens-when-australia-s-boomers-hand-5-trillion-to-their-heirs-20240515-p5jdvf">great wealth transfer</a> that has already begun looks set to <a href="https://theconversation.com/not-everyone-wins-from-the-bank-of-mum-and-dad-73842">further entrench inequality</a> between those who have access to the bank of mum and dad and those who do not. Encouraging older people to use their housing equity to fund their needs in old age may lighten fiscal burdens on younger generations. But policy reforms will be needed to relieve concerns about the risks of equity borrowing in old age.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/238924/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/rachel-ong-viforj-113482">Rachel Ong ViforJ</a>, ARC Future Fellow & Professor of Economics, <a href="https://theconversation.com/institutions/curtin-university-873">Curtin University</a> and <a href="https://theconversation.com/profiles/christopher-phelps-378137">Christopher Phelps</a>, Research Fellow, School of Accounting, Economics and Finance, <a href="https://theconversation.com/institutions/curtin-university-873">Curtin University</a> Image credits: Shutterstock This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/young-homeowners-are-more-likely-to-use-their-home-as-an-atm-than-their-boomer-parents-heres-why-238924">original article</a>. </div>

Money & Banking

Women have made many inroads in policing but barriers remain to achieving gender equity

Last week, the <a href="https://acwap.com.au/2019-australasian-council-of-women-and-policing-conference/">Australasian Council of Women and Policing held its 2019 conference</a>, with a focus on how law enforcement responds to women in the communities they serve and how police services can expand opportunities for women in leadership positions. Although opportunities for women in policing have expanded over time, their overall numbers remain relatively low. Nationwide, about <a href="https://www.pc.gov.au/research/ongoing/report-on-government-services/2019/justice/police-services">a third of all police personnel</a> were women in 2017-18, but barriers remain to states achieving their goals of reaching 50-50 gender parity on police forces. Women are vastly underrepresented in senior roles, as well. The changing role of women in policing <a href="https://www.bawp.org/women-policing-history/">Women began to play a role in policing in the United Kingdom</a> in the early 1900s, though this was initially limited to focusing on women and children impacted by war. By 1915, there were Women Police Service volunteer constables and officers patrolling streets across the country, though they were prevented from becoming a permanent part of the police force. In the United States, <a href="https://cops.usdoj.gov/html/dispatch/03-2017/history_of_women_in_LE.asp">Lola Baldwin became the country’s first sworn female police officer</a> in the city of Portland, Oregon, in 1908. <a href="https://www.opb.org/artsandlife/series/historical-photo/oregon-historical-photo-lola-g-baldwin-portland-policewoman/">Baldwin focused on crime prevention</a> in areas where women could be subject to predatory behaviours by men, such as dance halls and saloons. As societal attitudes changed over time, the opportunities and roles for women in policing expanded. For example, in 1975, the <a href="https://www.brisbanetimes.com.au/national/queensland/the-ether-man-how-police-caught-a-serial-brisbane-rapist-50-years-ago-20161128-gsza7b.html">Queensland Police Force established a specialised rape squad</a> to handle crimes involving sexual assaults against women, creating an <a href="https://mypolice.qld.gov.au/museum/2014/08/05/vault-assaults/">all-female team of investigators</a>. Women are still breaking into new areas of policing today. Queensland finally got its <a href="https://www.abc.net.au/news/2015-09-25/qld-first-female-motorbike-cops-to-hit-the-road/6806542">first female motorcycle officers</a> in 2017, for instance, when two women passed the arduous three-week qualifying course. Participation of women in policing In the <a href="https://ucr.fbi.gov/crime-in-the-u.s/2014/crime-in-the-u.s.-2014/tables/table-74">United States</a>, women comprised just 12% of sworn police officers (police officers with general arrest powers) in 2014 – an increase of just four percentage points from 1987. It is worth noting, however, that women were better represented on police forces in bigger population centres. Gender equity is slightly better in the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/817740/hosb1119-police-workforce.pdf">United Kingdom</a>, where women accounted for 30% of police officers in 2019, up from 26% in 2010. And in Australia, 33.6% of sworn and unsworn police personnel were women in 2017-18, up marginally from 32.2% in 2012-13, according to <a href="https://www.pc.gov.au/research/ongoing/report-on-government-services/2019/justice/police-services">the Report on Government Services 2019</a>. While most states have increased the number of women in their ranks in recent years, New South Wales and the Northern Territory have been trending in the opposite direction over the past 12 months. Australian women in policing 2012-18, including sworn and unsworn personnel. Report on Government Services 2019 Many police services across the country have now enacted strategies to achieve <a href="https://www.aipm.gov.au/sites/default/files/pictures/J2805%20-%20AIPM%20Research%20Focus%20Vol5%20Iss2_v1.pdf">50-50 gender equity for police staff</a>. And several services, including the Australian Federal Police, have initiated independent reviews of their organisational culture and the prevalence of sex discrimination. Breaking the glass ceiling and senior representation The United Kingdom appointed its first female chief constable (Pauline Clare) in 1995. In 2017, <a href="https://www.theguardian.com/uk-news/2017/feb/22/cressida-dick-appointed-first-female-met-police-commissioner">Cressida Dick was then appointed the first female head of the Metropolitan Police</a> – the UK’s largest police service. In 2001, Christine Nixon was appointed Victoria’s chief commissioner, the first woman to be named head of an Australian police force. And the appointment of Katarina Carroll as the <a href="https://www.abc.net.au/news/2019-04-23/new-qld-police-commissioner-katarina-carroll/11038446">Queensland police commissioner</a>this July marked the final breaking of the glass ceiling for that police service. However, despite these high-level appointments, problems still exist in terms of the representation of women in senior ranks. A <a href="https://www.linkedin.com/pulse/qps-executive-bloats-why-women-miss-out-terry-goldsworthy/">2018 analysis of Queensland police data</a> showed that women were proportionally underrepresented at every rank above inspector in that state. When questioned about this imbalance of female leadership, <a href="https://www.couriermail.com.au/news/queensland/crime-and-justice/queensland-police-service-struggling-to-attract-female-officers/news-story/e7512408295b70fbc9cfc72390336645">Queensland Police Commissioner</a> Ian Stewart said: Our promotions are based on people who can show merit. We will again not be changing our systems to promote people who don’t have the merit to do the job. In <a href="https://www.police.sa.gov.au/__data/assets/pdf_file/0004/518134/Hi-Res-Diversity-and-Inclusion-Strategy-2018-2020.pdf">South Australia</a>, women made up 28.5% of sworn police in 2017, but only 18.5% of commissioned officers. The same disparity exists in <a href="https://content.police.vic.gov.au/sites/default/files/2019-08/VICPOL%20Gender%20Equality%20Strategy%20%26%20Action%20Plan%202017-2020.pdf#_ga=2.12762743.1599970006.1567986364-2103021130.1567986364">Victoria</a>, where women accounted for 28% of sworn police officers in 2017, but only 16% of the leadership roles. A 2019 <a href="http://elizabethbroderick.com.au/wp-content/uploads/Final-Report-into-the-NSW-Police-Promotions-System.pdf">review of the NSW police promotion system</a> found that women were also underrepresented in leadership roles in that state, but it did not find any overt discrimination. Barriers to participation Despite having gender-equity targets in place, many states struggle with the recruitment of women for police forces. Although the Queensland Police Force <a href="https://www.couriermail.com.au/news/queensland/crime-and-justice/queensland-police-service-struggling-to-attract-female-officers/news-story/e7512408295b70fbc9cfc72390336645">did reach 50-50 parity</a> for its recruitment program in 2016-17, Stewart said it’s getting more difficult to attract female applicants. If we don’t have enough we won’t change the standard, and we’ll have more male applicants than women in a recruit program. I think that will happen at times. A Channel 7 News investigation found that Queensland police are struggling to find women recruits. The <a href="https://www.youtube.com/watch?v=SzsjOV8lu98">Victoria Police Force</a> last month announced it would provide targeted assistance for potential recruits to meet entry fitness standards in an effort to boost female participation. In essence, there are two main barriers to increasing the numbers of women in policing: elements of sexism and discrimination that result from the male-dominated culture in police forces and the nature of the job itself. A number of police services, including <a href="https://www.theguardian.com/australia-news/2019/jun/02/nsw-police-vow-to-end-boys-club-culture-after-report-reveals-extent-of-discrimination">NSW</a>, <a href="https://eoc.sa.gov.au/sites/default/files/inline-files/SAPOL_Review_2016_Final.pdf">South Australia</a>, <a href="https://www.news.com.au/national/breaking-news/more-to-do-on-vic-police-gender-issues/news-story/06741c1f2e4422641654e5e4e6d2812f">Victoria</a>and the <a href="https://www.afp.gov.au/sites/default/files/PDF/Reports/Cultural-Change-Report-2016.pdf">Australian Federal Police</a>, have conducted inquiries into the culture of their forces and made commitments to stamp out discrimination based on gender. What these changes cannot do, however, is make some aspects of the job more attractive to women. Operational policing involves shift work, long hours, exposure to physical harm and mental trauma. As <a href="https://www.couriermail.com.au/news/queensland/crime-and-justice/queensland-police-service-struggling-to-attract-female-officers/news-story/e7512408295b70fbc9cfc72390336645">Stewart</a> noted, Twenty-four-hour shifts and 365-days-a-year work all take a toll on people, and particularly for women who are the primary raiser[s] of families One potential solution is a bigger focus on <a href="https://www.theguardian.com/australia-news/2019/jun/02/nsw-police-vow-to-end-boys-club-culture-after-report-reveals-extent-of-discrimination">flexible working arrangements</a>and part-time policing arrangements to help improve the work-life balance for officers. But it remains to be seen if these steps will make a difference. While the number of women in policing is on the rise, only time will tell if <a href="https://www.aipm.gov.au/sites/default/files/pictures/J2805%20-%20AIPM%20Research%20Focus%20Vol5%20Iss2_v1.pdf">the goal of reaching 50-50 gender parity</a> will someday become reality. Written by Terry Goldsworthy. Republished with permission of <a href="https://theconversation.com/women-have-made-many-inroads-in-policing-but-barriers-remain-to-achieving-gender-equity-123082">The Conversation.</a>

Legal

Glitch in lottery could mean $27.6 million in winnings

A computer error could see a lottery company forced to pay out $27.6 million in prize money after duplicate winning tickets were generated for two hours. The programming glitch in South Carolina, US, created winning “Add-A-Play” tickets on Christmas Day, with each having a prize of $703. Nicole Coggins and her mother-in-law Shawanna Lad noticed the error and bought $140 worth of tickets, which resulted in them winning $25,000. “I played $10 first, and I won on every ticket,” she told <a href="http://www.wyff4.com/article/sc-lottery-officials-explain-error-that-dashed-winners-christmas-dreams/14500982" target="_blank">WYFF News 4</a>. “So I thought, ‘Well, maybe there is something wrong with their machine. This can’t be real.’” It turned out she was correct but as she went to collect their winnings, the machine said their tickets were invalid. The South Carolina Education Lottery addressed the issue with a statement. “From 5:51 pm to 7:53pm, the same play symbol was repeated in all nine available play areas on tickets which would result in a top prize of $500,” <a href="http://www.sceducationlottery.com/winners/NewsDisplayArticle.asp?ID=2776" target="_blank" title="www.sceducationlottery.com">it wrote</a>. “No more than five identical play symbols should appear for a single play. As soon as the issue was identified, the Add-A-Play game was suspended immediately to conduct a thorough investigation. “All players who purchased a Holiday Cash Add-A-Play ticket on Christmas Day during the time period affected are advised to hold on to their ticket(s) until the review is completed.” Later on, the company said there would be a meeting held before the end of January to discus the outcome, but would set aside the millions needed to distribute the winnings if they are required to validate the tickets. Have you ever won money in the lottery? Tell us in the comments below.

Money & Banking

Glitch in lottery could mean $25.1 million in winnings

A computer error could see a lottery company forced to pay out $25.1 million in prize money after duplicate winning tickets were generated for two hours. The programming glitch in South Carolina, US, created winning “Add-A-Play” tickets on Christmas Day, with each having a prize of $640. Nicole Coggins and her mother-in-law Shawanna Lad noticed the error and bought $128 worth of tickets, which resulted in them winning $23,000. “I played $10 first, and I won on every ticket,” she told <a href="http://www.wyff4.com/article/sc-lottery-officials-explain-error-that-dashed-winners-christmas-dreams/14500982" target="_blank">WYFF News 4</a>. “So I thought, ‘Well, maybe there is something wrong with their machine. This can’t be real.’” It turned out she was correct but as she went to collect their winnings, the machine said their tickets were invalid. The South Carolina Education Lottery addressed the issue with a statement. “From 5:51 pm to 7:53pm, the same play symbol was repeated in all nine available play areas on tickets which would result in a top prize of $500,” <a href="http://www.sceducationlottery.com/winners/NewsDisplayArticle.asp?ID=2776" target="_blank" title="www.sceducationlottery.com">it wrote</a>. “No more than five identical play symbols should appear for a single play. As soon as the issue was identified, the Add-A-Play game was suspended immediately to conduct a thorough investigation. “All players who purchased a Holiday Cash Add-A-Play ticket on Christmas Day during the time period affected are advised to hold on to their ticket(s) until the review is completed.” Later on, the company said there would be a meeting held before the end of January to discus the outcome, but would set aside the millions needed to distribute the winnings if they are required to validate the tickets. Have you ever won money in the lottery? Tell us in the comments below.

Money & Banking

Is a home equity release too risky?

If you’re over 60, own your own home and find yourself in need of a bit of extra cash, using the equity in your home may seem like an appealing option. And there’s no shortage of marketing out there suggesting you do so. A range of companies out there are looking to take advantage of cash-poor Australian homeowners. We’ve taken a look at home equity releases and ask the question – does it ever make sense to borrow against your home, or is it simply too risk a financial move? What is a home equity release? Home equity release products generally borrow against the value of your house. There are two main types of home equity release products available in Australia – reverse mortgages and home reservation schemes. In a reverse mortgage you use equity in your home as collateral to borrow and repay the loan (with interest and fees) when you move out of the place of die. As a result, the final amount can be huge, depending on how much you’ve borrowed. A home reservation scheme is when you sell part of the equity in your home and continue living there. When the house is sold, the provider receives the value of the proportion of equity originally purchased which, depending on how the housing market is going can be massive. When home equity release might be suitable ASIC recommends using your home equity may be suitable if: <ul> <li>You want a small amount each year to supplement your income and you can afford to do this for many years (most products)</li> <li>You need a lump sum for home maintenance or renovations so you can stay in your home</li> <li>You want money for a critical need e.g. medical treatment</li> <li>You need a loan to secure aged care accommodation until you sell your home</li> </ul> When home equity release is not suitable ASIC suggests using your home equity may not be suitable if: <ul> <li>You are spending much more each year than you can afford for the long term (a better solution may be to bite the bullet and do some serious budgeting using our budget planner)</li> <li>You want to give or lend money to your family (it may affect your pension and you may need the money in the years ahead)</li> <li>The debt could eat into money you need in the future for medical bills, aged care or home maintenance</li> <li>You are thinking of investing - because you would be risking your entire home, not just the portion you are investing</li> </ul> Related links: <a href="/finance/retirement-income/2016/03/products-up-to-date-ageing-population/">Are products keeping up to date with the ageing population?</a> <a href="/finance/retirement-income/2016/03/simple-ways-maximise-your-super/">Simple ways you can maximise your super</a> <a href="/finance/retirement-income/2016/03/asic-on-financial-advice-practices/">ASIC to weigh in on financial advice practices</a>

Retirement Income

Report finds many Aussies seniors live in relative income poverty

A new report had found many older Australians are living their lives in a state of relative income poverty due to policies that discourage them from accessing equity stored in their family home. The report, <a href="http://actuaries.asn.au/Library/Miscellaneous/2016/AIHOUSINGGPwebLres.pdf" target="_blank">Unlocking Housing Wealth</a>, released on Monday by the Institute of Actuaries of Australia, suggests that changes to the age pension test and a relief from stamp duty could potentially encourage seniors to unlock the $1 trillion of housing wealth owned by over 65s. Relative income poverty is defined as having an income less than half the national median household income, with Australians over 65 suffering the second highest relative income poverty rate of the wealthy countries in the Organisation for Economic Co-Operation and Development. Only Korean retirees are worse off. "In short, our retirees are asset rich but income poor," the Actuaries' report says. "Accessing part or all of their housing wealth will assist many individuals to meet their retirement needs." Report author and partner at PWC, Catherine Nance, suggested to The Sydney Morning Herald that many seniors could boost their living standards if penalties applying to selling the family home were removed, "Tax policies for years have encouraged people to save via their home. That's great, but it's a highly illiquid form of savings and there are impediments to people using that asset better." "We don't want to force people to move out of their homes or borrow against them. We're not trying to cure the budget deficit here. But we do want to help people to make better decisions that would improve their lives." Related links: <a href="/news/news/2016/03/last-official-interview-with-jon-english/">Watch the last interview Jon English gave</a> <a href="/news/news/2016/03/penguin-5000-miles-reunite-71-year-old-man/">Penguin swims 5,000 miles every year to reunite with 71-year-old man</a> <a href="/news/news/2016/03/85-year-old-man-finds-lost-wallet-71-years-later/">85-year-old man finds lost wallet, 71 years later</a>

News

A smart way to make retirement money last

We may be living longer but our savings are getting smaller, so how can you get the most of your retirement dollar? Ever thought about combining your super and home equity release for an income? It could be one way to see you through a comfortable retirement.Equity release offerings, such as reverse mortgages, are a missed opportunity for both retirees and financial service providers as Australians need all the help they can get when it comes to funding a sustainable retirement, says a recent report.Related link: <a href="/superannuation/super/2014/07/how-to-get-double-digit-returns-in-super-today!.aspx" target="_blank">How to get double digit returns in super today!</a> The annual Reverse Mortgage Report by financial advisory firm Deloitte estimates that more than $500 billion of home equity is held by Aussies aged over 65 and is available to be leveraged. James Hickey, a financial services partner at Deloitte and the report’s author, says banks, insurers and superannuation funds are best placed to better embrace, understand and educate Australians on the option of equity release products. “These are the groups seeking to help their customers aged 65 and over to navigate their retirement with the dual challenges of longevity and income sustainability. Bringing what is often their most substantial asset – their home – into such discussions must be in the best interests of everyone,” he explains. Earlier in the year, Deloitte’s Adequacy in Superannuation research found that as of June 2013, an Aussie’s average super account balance was at best a third of what will be required to deliver that person even a modest income in retirement – which is $450 a week according to the Association of Superannuation Funds of Australia. “Given that for many retirees the equity in their home continues to represent two thirds or more of their entire wealth, well in excess of their superannuation balance, a reverse mortgage is a very useful consideration for cash-poor asset-rich retirees who want either extra cash flow or to fund an aged care accommodation bond,” Mr Hickey says. However, like other financial products, there are risks involved in reverse mortgages. In an article published earlier this year on The Conversation, Rachel Ong, an associate professor at Curtin University, and Gavin Wood, a professor of housing at RMIT University, said that while tapping into home equity can bring immense financial benefits to homeowners, it can also expose people to uncomfortable levels of risk. This is especially the case for people in their 50s and 60s who are reaching or have reached the end of their working career. Despite this, the scale of equity borrowing has been significant in Australia, with one in five Aussie homeowners having dipped into their housing equity every year over the last decade. Mr Hickey says that for those over-60s looking at equity release options, you need to be aware that these products require support and education. The same focus as that of superannuation and downsizing a property.

Retirement Income

How to tap into home equity

Are you looking to make retirement a little more comfortable? Unlocking the equity in your home could be just what you need. A reverse mortgage, or equity release, allows an increasing number of asset-rich and cash-poor retirees to turn to the equity in their family home for rising living costs or one-off expenses, like that trip to Italy you’ve always dreamed of going on. The loan allows you to borrow money using the equity in your home as security and is available as a lump sum, a regular income stream or a line of credit. You can also access it via a combination of these options. Interest is compounded over time and added to the loan balance, which is repaid in full when you sell the house, move into aged care or die. According to the Australian Securities and Investments Commission, no income is required to qualify for the loan but credit providers are required by law to lend money responsibly so not everyone will have access to this type of loan. What’s the appeal of reverse mortgages? South Australian-focused finance company, HomeStart Finance, says more retirees are choosing reverse mortgages to access home equity in the face of limited finance options. “Most lenders are reluctant to offer personal loans to retirees due to their employment status, even though they may be sitting on valuable assets,” HomeStart chief executive John Oliver explains. "We’ve seen positive growth in Adelaide’s property market which hints that the market has stabilised. “Home ownership in Australia is higher among baby boomers than in any other demographic and reverse mortgages provide them with the ability to access the equity they’ve worked hard to build to maintain their lifestyle when their income options are limited.” HomeStart offers a Seniors Equity Loan for South Australian residents over the age of 60 to unlock equity on a “no negative equity” guarantee, which means you’ll never owe more than the value of your home. Loan amounts for reverse mortgages are based on the borrower’s age and the value of their property. Westpac, Bankwest and St George are a few of the other financial institutions which offer similar products for residents in other states. Are there drawbacks? The problem with these types of loans is interest rates are generally higher than average home loans and the debt can rise quickly as a result of the interest compounding over the term of the loan. Mr Oliver admits there has been some negativity associated with reverse mortgage products due to the perceived risk of ending up with negative equity, where the mortgage becomes higher than the value of the house. “However, the reverse mortgage landscape has changed dramatically since they were first introduced in the mid-90s. There are now regulations in place that provide consumers with a no negative equity guarantee and best practice also recommends that the borrower seeks legal and financial advice before proceeding,” he says. “The ‘no negative equity guarantee’ introduced in 2012 guarantees borrowers that if, when their house is sold, the proceeds of the sale are less than the amount owed to the lender, the lender is unable to pursue the borrower or their beneficiaries, for the shortfall. Lenders are also required to clearly communicate the impact of a reverse mortgage and associated risks.” Always remember… With many reverse mortgages, repayments are voluntary. However, borrowers need to understand that if no repayments are made, debt can compound quickly. At the very least, borrowers should try and cover the interest to contain the debt. Before going into any arrangement be aware of the risks involved and speak to a financial adviser before accessing any loan. If you’re receiving Centrelink payments, it’s worth going to your local office to see how it may affect your pension eligibility.

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