Seniors to tap into Home Equity
More and more seniors will be tapping into their home equity to fund their lifestyle in the future, according to Peter McGuinness, CEO of Bluestone Equity Release (Australia’s first specialist reverse mortgage company). “While there has been strong growth in house prices over the last decade, many seniors are concerned about having enough money to live on and about their quality of life,” says Mr McGuinness. “Seniors want autonomy to make their own decisions; they do not want to be told what they can and can’t do by Government, by their family, or by anyone else for that matter.
They want security and a decent lifestyle in retirement. While previous generations may have been content to scrimp and save, younger retirees have been brought up on credit. We estimate that at least one in 10 will be tapping into the equity in their homes to fund their lifestyle. And why shouldn’t they? After all it’s their money.” According to a survey by the Australian Housing and Urban Research Institute of nearly 7,000 older Australians, one in four retirees expect to use up all their assets before they die. An even higher proportion of baby boomers – one in three - expect that to be the case.
However, Mr McGuinness said that the maximum that a homeowner could draw down with Bluestone Equity Release was 45 per cent of their home equity for someone aged over 77 and that the majority took a lesser amount. In order to take 45 per cent as a lump sum the homeowner would have to be over 85. These safeguards are in place to ensure that people do not over extend themselves when borrowing funds against their property. The desire for independence, flexibility, consumer and lifestyle choices has spawned two new acronyms – SKIers (Spend the Kids Inheritance) and OWLS (Oldies Withdrawing Loot Sensibly).
When it comes to the family home, while some are happy to downsize, many would prefer to stay put. As a result reverse mortgages are becoming increasingly popular, with the market forecast to grow from $600m last year to $3bn by 2010 (source: Datamonitor). Daphne is a good example. At the ripe old age of 80 she decided she would like to borrow against her house so she spoke to her children and also took independent legal advice to make sure that it would not affect her pension entitlements.“When I became a widow, I made up my mind that my children were not going to have to look after me while I was still able to look after myself.
I now have some cash behind me and have been able to go on a couple of holidays already while my health is still quite good. I feel as though a load has been taken off my shoulders.” Reverse mortgages allow homeowners who are over 60 to borrow against the security of their primary residence to provide a lump sum, a regular income or a combination of the two.
Repayments don't usually have to be made until they leave and move into care, sell their home or die. Mr McGuinness advises anyone considering a reverse mortgage to take their time, consult with their children and seek independent legal opinion and financial advice.“Our experience is that children are generally very supportive of their parents having a decent standard of living in retirement.
A third will have already received some form of financial assistance so in effect they have been getting some of their inheritance early,” he said.“It’s important to get professional advice, for instance on the potential impact on pension entitlements or what a rise in interest rates might mean. We can help protect homeowners against the impact of interest rate rises by providing a reverse mortgage which has a fixed rate or one that is capped for life.”
Contacts
To help homeowners estimate the cost of a reverse mortgage ASIC has developed a webbased calculator - see www.fido.gov.au
Bluestone Equity Release
www.bluestone.com.au