Home Equity Release – Challenges and Opportunities

Author: . . .

The Australian Centre for Financial Studies (ACFS) has today released a new report on Australia’s home equity release market. The report, written by Associate Professor Ashton de Silva, Dr Sarah Sinclair, Dr Stuart Thomas and Dr Farzad Alavi Fard, all of the School of Economics, Finance and Marketing at RMIT University, identifies challenges and opportunities in developing markets for financial products that could give Australians access to their home equity in retirement.

Although the superannuation system continues to build balances as it matures, managing longevity risk (the risk of outliving retirement savings) presents a growing challenge for Australian households, businesses, and governments. Innovative financial products will be necessary to address this challenge. Many households, while short on retirement savings, have substantial wealth tied up in the family home. For these households, accessing the equity in their home could be a viable, even desirable, way to supplement retirement savings. Releasing home equity could increase standards of living in retirement, provide secure investment returns for the private sector, reduce further dependence on government support, and allow retirees to ‘age in place’ – a widely desired option.

Australia’s home equity release market, which for the purposes of this report is taken to include reverse mortgages, home reversion schemes and variations of them, is very small, largely due to financial and social factors. A major conclusion drawn from the research is that both current and future retirees appear largely unaware of or uncertain about the possible relevance of these options for their retirement.

The report makes a set of broad recommendations, including:

  • There should be an education package aimed at the broader community regarding home equity release products that explains their features and their risks.
  • Noting the desire to ‘age in place’, the apparent shortfall in living standards (acknowledged by retirees), as well as the home being a form of precautionary savings, more needs to be done to allay the fears and concerns of current and future retirees. This could take the form of more sophisticated retirement packages – for example, bundling home equity release options with retirement care options as well as bequest arrangements.
  • Regulatory authorities must remain open to innovative products in the retirement income market. Further, the uncertainty plaguing various aspects of the retirement markets must be addressed. In particular, changes to taxation of superannuation and means testing of pension qualifications must be more coherent and less ad hoc.

Home Equity Release: Challenges and Opportunities was funded by an ACFS grant and is the latest in the Commissioned Paper series. Each year, ACFS provides funding for outstanding academics at affiliated universities to prepare Commissioned Papers that provide industry practitioners with an overview of the latest insights from recent academic research.

Download Commissioned Paper: Home Equity Release: Challenges and Opportunities

Media contacts:

Associate Professor Ashton de Silva
School of Economics, Finance and Marketing, RMIT University
Email: ashton.desilva@rmit.edu.au
Phone: (03) 9925 1313

Dr Stuart Thomas
School of Economics, Finance and Marketing, RMIT University
Email: stuart.thomas@rmit.edu.au
Phone: (03) 9925 5773

Professor Kevin Davis
Research Director, Australian Centre for Financial Studies
Email: kevin.davis@australiancentre.com.au
Phone: (03) 9666 1010