According to the SMH, superannuation savings are woefully inadequate and will leave Australians nearly $700 billion short of what is needed to live decently in retirement, according to new research.

The Investment and Financial Services Association has calculated that by the middle of 2008 Australians had a retirement ‘’savings gap” of $695 billion, a dramatic increase on the $452 billion gap when the group last assessed super contributions.

The latest numbers do not include the worst of the global financial crisis, so the gap is likely to have grown. More recent data was not available. The figures mean the average savings gap is $73,000 a person, an increase of $26,000 over the previous four years.

Reverse mortgages and equity release products are a natural part of the solution to this, but the sharp reduction in lenders and product choice arising from the global financial crisis will impair the ability of some pensioners and retirees to find a solution.   

According to Reverse Mortgage Daily, a U.S leading blog on reverse mortgages, the ‘penetration rate’ for reverse mortgages has just exceeded 2% for the first time.

This means that of all households in America that are eligible, more than 2 per cent have now established a reverse mortgage to help fund their retirement. By comparison in Australia, where our reverse mortgage industry has been active for much less time, the ‘penetration rate’ (or take-up rate) of reverse mortgages is still only about 1 per cent.

Given the huge shortfall in retirement savings and the growing numbers of ‘baby-boomers’, it will only be a matter of time before Australia too exceeds a 2 per cent take-up rate of reverse mortgages amongst eligible households. 

In an unexpected move, the Royal Bank of Scotland (RBS) recently increased it’s minimum age from 60 to 65 years, effective immediately. With only one lender left offering reverse mortgages from 63 years (all others are now 65), this now means that Australian seniors must wait longer to access their home equity.

What were the reasons behind this decision?

Over the last 18 months, many lenders who previously offered reverse mortgages from 60 years of age have exited the market. Consequently RBS was the only lender left to cater to the 60-63 year market, and it’s likely they received too much of this business for their liking, and have mitigated this by raising their minimum age to 65.  

For information on the remaining lender who offers reverse mortgages from 63 years, enquire here.

The number of reverse mortgages in Australia has increased, a new study has found.

According to the report by Deloitte Actuaries and Consultants, the local reverse mortgage market grew by 13 per cent over the last financial year, measured by outstanding balances after 4,950 new borrowers entered the market.

The average age of the reverse mortgage borrower is 74, the report said.

The report also found that the main reason for taking out a reverse mortgage was to receive a regular income stream in retirement, followed by debt repayment and home improvement.

SEQUAL chief executive Kevin Conlon said the average borrower took out about 70 per cent of what was available to them, showing senior Australians were showing constraint.

“They’re making informed decisions, they’re mapping their requirements and they’re borrowing what they need rather than what they desire or what’s made available to them,” Mr Conlon said.

The study also showed that 10 per cent of borrowers voluntarily repay their reverse mortgage each year.

“This is an important finding as it shows that such borrowers are only being exposed to reverse mortgage compound interest for a relatively short period of time,” Mr Hickey said.

The Sydney Morning Herald recently reported that the NSW Government is about to strip the elderly of a portion of their hard-won pension increases, defying the wishes of the Prime Minister.

NSW and other states will raise public housing rents for single aged-care pensioners in tandem with their $30-a-week pension increase.

It means that, from September next year, hundreds of thousands of pensioners will lose a quarter of their pension boost - and while that is only $7.50 a week, it represents about 10 per cent of their typical food budget.

On September 20th, a number signifcant changes to the government aged pension came into effect.

The single pensioner rate will increase by $65 per fortnight. The pension for couples will also increase by $20.30 per fortnight combined.

The income test and ‘taper rate’ has also changed: the rate at which excess income affects the pension will change from 40 cents in the dollar to 50 cents in the dollar for singles. For couples, it will change from 20 cents each in the dollar to 25 cents each in the dollar.

The pension income test ‘free area’ is currently $142 a fortnight for singles and $248 for couples combined. Pensioners with private income below these amounts will not be affected by these changes.

For more government information on pensions go here.

Seniors First continue to lead the way in showing people over 60 how to find the best reverse mortgage lenders and loan products as they’ve again been named as a finalist for equity release / reverse mortgage broker of the year at the 2009 Australian Mortgage Awards. This year however, Seniors First has received the rare honour of being named a finalist in two categories with a nomination also for Broker of the Year, more than 6 staff.

Full comment from Seniors First can be read here. 

This follows their nomination as a finalist in both the 2007 and 2008 Australian Mortgage Awards. 

(Disclosure: the editor of this site is also the MD of Seniors First) 

As highlighted in the Sydney Morning Herald yesterday, more people are still paying off mortgages into their late 50s and beyond as higher house prices fuel bigger loans.

According to an analysis of Bureau of Statistics data, the SMH found that the proportion of people over 55 who own their home outright has fallen from 74 per cent in 2000, to 67 per cent in 2009. The slump in outright home ownership among over-55s reflects a wider decline across all age groups, but is slightly more pronounced.

This will have implications for the coming generations of retirees, who will either have to work longer to pay down these debts, or use reverse mortgage and equity release products to refinance the remainder of their home loans prior to full retirement. Recent SEQUAL data on reverse mortgages indicates that this already happening, with the percentage of new reverse mortgages being used to refinance existing home loans on the increase.  

Today Tonight’s story on reverse mortgages last Thursday night was an opportunity squandered. For a show that claims to serve the interests of seniors and consumers generally, their segment on reverse mortgages was profoundly unhelpful. 

This story was a golden opportunity to educate seniors on the pros and cons of reverse mortgages and how to release equity safely. Instead the program chose to scaremonger and portray reverse mortgages in an overwhelmingly negative way that will do little to help seniors currently struggling in the wake of the global financial crisis. The closing assertion by presenter Matt White that borrowing just 15 per cent of the property could erode all of the borrower’s equity in ten years, was spurious at best. It relies on assumptions, not disclosed in the program, of zero property growth and 12 per cent interest rates for the entire ten year period.

 Such a scenario has never occurred in Australia’s history. Given that the average property growth over the last 25 years has been 6 per cent, and that the Reserve Bank officially aims to keep interest rates in the range of 6 to 8 per cent, the example used on the show was impractical in the extreme, and of no real use to senior consumers. 

The real pity is that this sensationalist, poor journalism will put off some consumers who need it most.

Where was the fact that a senior borrower can draw as little as $300 per month to supplement their pension? Where was the fact that monthly fees charged by some lenders are to be avoided where ever possible as these themselves attract interest?  A good specialist adviser, such as Seniors First, can properly educate senior borrowers about these issues, and more.    It is true that senior borrowers must be careful when establishing a reverse mortgage, but there is much, much more to consider than what was shown in the Today Tonight segment. It was an opportunity squandered.

Members of the public who want to properly understand reverse mortgages can obtain a free copy of the Seniors First consumer report by download at www.seniorsfirst.com.au or by calling their office on 1300 745 745.      

Tony D’Aloisio chairman of ASICand Paul Clitheroe chairman of the Australian Government Financial Literacy Board, last week launched Thinking of using the equity in your home? A new independent guide to reverse mortgages and other equity release products.ASIC’s new guide is designed to assist people who are considering whether an equity release product is right for their individual circumstances.
‘When someone considers using the equity in their home, it’s a big step involving what is probably their most valuable asset. While equity release products can give you benefits they can also have significant risks’, said Mr D’Aloisio. ‘Our research shows that people find it difficult to understand these products. One of the big challenges is how to estimate the long-term cost of reverse mortgages and ensure there is enough equity left to fund future needs. We’re also concerned that people are sometimes encouraged to borrow more money than they actually need, ultimately at a greater cost to them,’ Mr D’Aloisio said.

‘If you need additional money now, an equity release product is only one of the many available options. Using your home equity now could significantly limit your choices if you need money in the future,’ Mr Clitheroe said.

Reverse Mortgage Watch supports ASIC’s initiative. You can download the free report here or call 1300 300 630 to request a free copy in the mail.