Equity Release – An Untapped Retirement Solution
In our previous article we referred to the Australian Productivity Commission (PC) 2015 survey data that shows approximately half of households surveyed have less than $200k in household savings and investments (not including the family home). The data also shows that only a quarter of retirees that own their home consider that they are comfortably off, with enough money to enjoy life. At the other end of the spectrum, around 14% consider themselves financially strained and experiencing difficulty affording more than the basics. A third of survey respondents said they were not comfortable with their retirement plans and 41% expect to exhaust their retirement savings. As we have noted previously, Australian retirees face an unusually high exposure to longevity risk – the risk of outliving their financial resources. In this article we’ll consider how much wealth retirees or near-retirees are holding in their homes and how many are aware, of or considering ways of, accessing it.
In a recent report, housing analysts CoreLogic highlighted the scale of Australia’s housing wealth, noting that the total value of $7 trillion far exceeded the value of superannuation savings ($2.2 trillion). Looking more closely at retirees and near-retirees in the PC survey, 44% estimate the value of their home at more than $500,000 and 10% estimate it at more than $1,000,000. By contrast, only 20% have non-housing savings (including superannuation) greater than $500k and 9% have savings of more than $1m. It is clear then where most of retirees’ wealth resides.
The desire to see out retirement in the family home is strongly expressed (76%) and close to half (46%) would like to leave some or all of their housing wealth to their children. Some 71% see the wealth in their home as safety net, but only 40% of all respondents aged 60+ have given some thought to how they would use their house to fund their retirement and 27% have not given the idea any thought at all. When we look at more closely, of households with low retirement savings (<20k), 22% would consider selling their home and 28% would consider accessing the equity in their home. Of high savings households (>300k) the proportions are similar at 20% and 29% respectively. We also see that younger age groups (60-74) more amenable to the idea than older retirees. It’s unclear whether these relatively low proportions are indicative of a lack of awareness or lack of availability of financial products to release equity from the home, such as reverse mortgage and home reversion offerings.
With housing wealth among retirees and near-retirees still far exceeding superannuation savings, coupled with uncertainties about the future of the age pension there is a growing case for retirees, their advisers, the financial markets and policy makers to look more closely at equity release. Accessing home equity may not be for everyone but for those that have the means and are open to the idea, there needs to be more safe and flexible opportunity for retirees to use it to maintain their financial comfort and wellbeing in later life.
Stuart Thomas, Ashton DeSilva and Sarah King Sinclair
Placemaking Economics Group
School of Economics, Finance and Marketing
Heartland has partnered with the RMIT University’s School of Economics, Finance and Marketing to develop a series of articles on aging in place. We are pleased to be able to provide their knowledge and research through our Reverse Mortgage News.
Data Sources: Productivity Commission (2015), Commissioned Research Paper “Housing Decisions of Older Australians”. CoreLogic (2017), “Perception of Housing Affordability Survey” 2017 conducted by Galaxy Research.
Information provided is accurate as at 20 November 2017 and may change from time to time