Combine super and home equity release for a more sustainable retirement
10 July 2014: Deloitte says equity release offerings such as reverse mortgages are a missed opportunity for both retirees and financial services providers as Australians need all the help they can get to fund a sustainable retirement.
In its annual Reverse Mortgage Report, Deloitte estimates more than $500 billion of home equity is held by Australians aged over 65 and available to be leveraged.
James Hickey, Deloitte Partner Financial Services and author of this year’s Deloitte report said: “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 said.
A June 2014 point of view from Deloitte, Adequacy in Superannuation, pointed out that at June 2013, an Australian’s average super account balance was at best a third of what will be required to deliver even a modest income in retirement – determined by the Association of Superannuation Funds of Australia at around $450 a week.
“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,” Hickey said.
The 12th comprehensive annual study of the Australian reverse mortgage sector, commissioned by the Senior Australians Equity Release Association (SEQUAL), shows that at 31 December 2013, the reverse mortgage market in Australia consisted of more than 41,000 reverse mortgage facilities, with total outstanding funding of $3.56 billion.
“Despite the very healthy dynamics, such as controlled loan to value ratio lending and the fact that more than 12% of borrowers voluntarily repay their mortgage each year, market growth was flat last year,” said Hickey. “The 4,300 new borrowers in 2013 offset the existing borrowers who repaid their facility, and the average loan size advanced remained around $85,000.
“While many retirees focus on superannuation and think they have to downsize their home – which has impacts on pension eligibility and Centrelink entitlements – being aware of equity release options and how they work requires support and education.”
In addition James Hickey said: “The aged care funding changes that came into effect 1 July 2014 should further provide evidence of the beneficial role of equity release products to fund aged care accommodation bonds. This is an opportunity only a few groups have identified.”
John Thomas, Chairman of SEQUAL, the peak industry body that governs equity release providers and determines consumer safeguards, said: “Equity releases are national products offered to Australians in every state. They are supported by two major banks and a number of regional and niche lenders.”
“The majority of equity release customers are couples (64%) aged between 70-79 with almost half of their released funds used to provide a regular income (50%), followed by debt repayment (30%) and home improvements (14%).”
Summary of key findings
- Market (by $ outstanding) has remained flat in the 12 months to December 2013
- Some 4,300 new borrowers took out a reverse mortgage in 2013
- Full discharge rate of 12.1% p.a. (mainly sale of property and voluntary repayment)
- Additional drawdowns account for approximately 1.3% of outstanding loans (one in 20 borrowers with the average size $23,000)
- Lump sums are the most popular drawn down type
- Brokers and planners account for 22% of settlements, with direct channel 77%
- State-based percentage of outstanding loans are:
- Around 77% of the outstanding loans are in capital cities
- Larger regional areas in NSW and Queensland lead non-metro lending
- However, recent settlements (around 88%) are in capital cities
SEQUAL Chairman John Thomas said that SEQUAL and its members are committed to appropriate product design, high standards of practice and responsible borrowing.
“The effective use of a combination of lump sum and income stream options enable borrowers to borrow what they want, when they need it. It is important that consumers make informed decisions and carefully consider how their needs may change over time,” he said.
Thomas said that SEQUAL’s industry accreditation protocol raises professional standards above the minimum education requirements imposed by legislation and industry association membership. SEQUAL has established a national network of accredited Seniors Equity Release Consultants (SERC) which assist consumers make informed decisions about equity release strategies.
For more information about SEQUAL approved lenders and reverse mortgages go to www.sequal.com.au.
See Deloitte media releases and research at www.deloitte.com.au
Last Updated: Monday, 28 July 2014
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