News

Housing market embraces reverse mortgage concept

Media Release, Thursday 27 November 2003

Australia’s high-priced housing market is beginning to embrace the concept of reverse mortgaging and is in a prime position to reintroduce it according to University of Melbourne property expert Dr Richard Reed.

Dr Reed will release a book titled “Reverse Mortgages” through John Wiley & Sons on December 11 which will outline the benefits of reverse mortgages for “house rich, cash poor” Australians.

Reverse mortgages allows homeowners to spend the equity they have built up in their homes.
The concept was created in the USA to allow “house rich, cash poor” elderly homeowners access to their home equity to pay increasing living expenses or emergency bills without having to sell their homes.

In a report written with Georgia State University’s Karen Gibler earlier this year, Dr Reed stated that the time was right to revive the concept of reverse mortgaging, with the benefit of analysis from the US experience.

Dr Reed said that in Australia, reverse mortgages were tried in the 1990s but the concept was withdrawn due to a lack of consumer demand.

However he argued that the recent housing price boom and continually spiralling medical costs supported an argument for a re-launch of reverse mortgages in Australia.

Since the release of the paper, the Commonwealth Bank of Australia announced the promotion of reverse mortgages and in his soon-to-be released-book, Dr Reed explores the broad implications for older homeowners, those currently in the workforce and the overall market with the wider availability of Reverse mortgaging in Australia.

Reverse mortgaging allows homeowners to withdraw equity built up on their properties, with repayments due when the owner moves or dies. Repayment is typically repaid from the sale of the house or when heirs use other assets to repay the debt.

Dr Reed said reverse mortgages appear to have a lot to offer a limited number of elderly households, especially those that fall into the “asset rich but cash poor” category.

“It offers a means of accessing hard earned equity and raising the quality of lifestyle in later years. The Australian reverse mortgage industry can benefit from the experience of overseas housing markets, especially in the USA, by tailoring a product that will suit both the elderly household, the financer and society at large,” he said.

However, he said substantial consideration should be given to the framework surrounding reverse mortgaging, including the provision of a governing body to regulate financiers, to ensure equity and a high level of ethics.