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19th of April 2016

Reverse mortgage cynics see improved solution (Financial Observer)

Reverse mortgage cynics see improved solution

Advisers were starting to look for solutions for their retiree clients to progressively release and use some of the equity in their family home, according to Homesafe Solutions.

The anxiety among advisers about the risks involved with hastily moving their retiree clients back into debt too quickly via a reverse mortgage was a growing concern and Homesafe provided an alternative with much less risk, the group’s managing director, Peter Szabo, told financialobserver.

Since the release of the Productivity Commission paper “Housing Decisions for Older Australians” in December 2015 and the more recent Actuaries Institute green paper “Unlocking Housing Wealth”, the spotlight was well and truly on the issue of funding the nation’s ageing population now and in the future, Szabo said.

“One high-profile issue that has emerged is the realisation that on leaving the workforce many Australian retirees will have most of their wealth tied up in the family home,” he pointed out.

The balance of wealth would be comprised of insufficient savings and superannuation that would fall far short of the funds required to maintain a comfortable and dignified life in retirement, he said.

“Another reality is that many will enter retirement with a mortgage over the family home that will be required to be serviced without the benefit of a salary or wage – or in the worst-case scenario asked to be repaid in full by the lender,” he added.

While downsizing was also an option, it would often not release as much equity as a retiree needed once the costs of purchasing a new home, such as stamp duty, legal fees and removals, were factored in, particularly as retirees usually wanted to live in high-priced areas close to the city and their children.

Instead, Homesafe delivered an option that would buy a share of the future sale proceeds of a home of an older person, who would receive an amount of cash up front, he said.

“Homesafe’s equity release offering allows retirees to live in the comfort of their home in a familiar and secure environment surrounded by friends, family and community in which they have lived for many years,” he said.

“There are no repayments and the senior homeowner has the certainty that they will always retain their share of the sale proceeds.”

Although he said Homesafe was gaining traction among advisers, it was not yet quickly enough to address the retirement savings gap suffered by many advice clients. 

19 Apr 2016

By Kristen Crawford (Financial Observer)