A word from Household Capital
Household Capital provides flexible lending solutions tailored to meet the needs of Australians aged 60 and over. We understand the unique financial and lifestyle priorities of this stage of life, so our products are designed to meet those needs.
We’ve worked with brokers to help thousands of over-60s boost their retirement income and access capital to enhance their lifestyle, wellbeing and housing.
Our approach aims to provide your clients with the best of both worlds – to continue living in the home they love with the confidence to enjoy the retirement lifestyle they deserve.
It’s a curious moment in the property market, when a cost-of-living squeeze can leave home owning retirees feeling strapped for cash, even though rising house prices have made them wealthier than ever on paper.
Unlocking equity via an outright sale can cause as many problems as it solves, especially for home owners who need to find another dwelling in a heated market.
Rather than posting a for-sale sign in their front garden and hoping for the best, an increasing number of asset-rich, cash-poor retirees have turned to reverse mortgages.
Shelley Wettenhall, head of broker distribution at reverse mortgage lender Household Capital, says many borrowers are now in a position where this solution makes sense.
“Reverse mortgages start at 60 and banks don’t like anyone over 60. That’s where we come in and help these people. More than half of the people who are looking towards retirement have a mortgage, and that’s a significant amount of money,” Wettenhall says.
And indicators suggest an increasing number of Australians are approaching retirement.
Direction change
Typically, a reverse mortgage lets borrowers tap into their home equity, using property as a security to access funds as a lump sum or a regular income stream.
Borrowers can use these funds for home renovations, healthcare costs, lifestyle expenses, or to support family needs, all while remaining in their home.
Rather than regular repayments, borrowers pay off the loan, plus interest, when their home is sold, they move into aged care, or their estate is settled. Borrowers also have the option to repay part or all of their loan at any time, without penalty.
The nature of these products, and the older demographic they cater to, have naturally seen this segment face its fair deal of regulatory scrutiny.
But the tides are shifting, and improving lending standards and safeguards have helped reframe reverse mortgages in the eyes of borrowers, according to Wettenhall.
“The negative connotations that [once] came with reverse mortgages are really starting to leave the product. Now people are more accepting,” she says
“They can actually see it’s a very different product from what it was.”
Scott Phillips, managing director and mortgage broker at Your Home Equity, specialises in reverse mortgages and also says the segment has come a long way.
“We have to wear that legacy, but the industry itself is probably one of the most tidy, compliant industries there is,” he says.
“There are a lot of specialist brokers that are highly trained to work with people of this age and demographic, and the lending is complex.
“There are a lot of things to consider, including their future needs. But of course, for many clients, they have significant equity, and the solutions and the problems they need to solve are very solvable, just in a different way.”
Wettenhall underscores the impact of key consumer protections, such as the no negative equity guarantee (NNEG) and guaranteed occupancy rules.
“The NNEG means a client can never owe us more than what the house is worth. In the past, that could happen. If the property market fell away, and your loan ended up being worth more than what the house was. But now, legislation means that can’t happen,” she says.
“The other one is what’s called guaranteed occupancy, and this is what really sets a reverse mortgage apart from a forward mortgage.
“We can never ask the client to leave the home. We can never ask the client to sell the home. It’s very different from forfeiting on a forward mortgage and they will foreclose. We can’t do that.”
Gear shift
Brokers accustomed to standard mortgages often find that reverse mortgages come heaped with added layers of complexity that require nuance to navigate.
For instance, Phillips advises brokers to pay close attention to how clients manage their income and expenses to ensure the structure of the finance is sustainable.
“We’re focused on making sure there’s enough verified income for the client to live and pay for food and groceries and energy, as well as maintain the property and keep insured and pay council rates,” he says.
“We have to make sure that there are no vulnerability issues, so that the client fully understands what they’re doing.”
A client’s future needs provide another concern.
“That’s making sure the client understands the terms of the loan, the equity they will have left, the finances they will have left, and whether that is adequate to meet their objectives for aged care and inheritance,” he says.
Wettenhall acknowledges the intricacies of the borrower profile, which means brokers need to be vigilant to the higher risk of cognitive impairment due to age-related mental decline and the risk of financial abuse.
“There is always a greater risk when you’re dealing with older borrowers. We really need to be compliant and ensure that it is for the benefit of the actual applicant,” she says.
“For example, one of our purposes is gifting – if the borrower would like to give some money to their kids for first-home deposits or school fees for grandkids. That’s when we really need to be laser-focused and ask if this is actually the intent of the applicant.”
Some brokers may also be surprised by how the pace of the process differs from writing a conventional mortgage, according to Phillips.
“These are people at a stage in their life where there’s not a deadline. They’re not having to purchase a home. They’re making a decision about their finances,” he says.
“They may take their time. They may have other things to consider. So it’s very touch heavy. There’s a lot of education, a lot of nurturing, a lot of support.
“It’s a wonderful space to work in. You’re helping lots of people. But it’s very different.”
Back to forward
One of the biggest shifts Phillips has observed in the reverse mortgage sector in recent years is the removal of the stigma that was once attached to these loans.
“People have made their way to the situation that they’re in, in their life, and there seems like there’s less embarrassment about reaching out and getting help,” he says.
“My view is that [reverse mortgages] are viewed as a constructive product to manage a situation. There’s no longer this shame or embarrassment about the situation.”
Wettenhall also says brokers shouldn’t lose sight of how their guidance can affect a retiree’s day-to-day life, whether the borrower wishes to free up capital for necessary home improvements or a gift deposit for their grandchild to buy their first home.
“Don’t underestimate the impact that you can have on a retiree’s lifestyle by helping them financially with a reverse mortgage,” she says.
“We’ve seen some bad situations where they have not been able to afford a hip replacement, a knee replacement, or turn on the electricity. You can make a huge impact on someone’s lifestyle just by refinancing a $50,000 mortgage or securing them a $20,000 contingency so they can fix a hole in the roof of their house. These are the sorts of stories we see.”
Reverse mortgage case study
• Borrower: Lynne
• Age: 75 years old
• Location: Sydney
Lynne is a 75-year-old retiree who lives in Blacktown, a suburb in Greater Western Sydney.
After her husband passed away, she needed to buy a reliable car that would help her live her retirement years with maximum freedom and safety. However, Lynne found she couldn’t secure a loan from a bank.
By accessing the equity in her home, Lynne received the money she needed to purchase her new car. She also used her home equity to landscape her garden and establish a contingency fund for unexpected expenses that may arise
“The way I looked at it, I’m only using the roof of my house,” Lynne says.
“Therefore, by the time I have to move out of my house, my kids will still own the four walls, and it still will only be the roof that I have borrowed and used.”
