How reverse mortgages help ageing Australians

Heartland Finance talks to MPA journalist Priscilla Dickinson about what a reverse mortgage is, the societal factors driving demand and implications of the extension of the asset test exemption on home sale proceeds.

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Priscilla: Welcome to MPATV. My name is Priscilla Dickinson, journalist at Mortgage Professional Australia. Joining me today is Sharon Yardley. Sharon leads Heartland's reverse mortgage business in Australia. Heartland Reverse Mortgages has been nominated non-bank of the year in the 2022 Australian Mortgage Awards. Sharon is an expert in the operational aspects of reverse mortgages, how they work and the choices they provide older homeowners and the 60 plus age group. Sharon, thank you so much for joining us today. How are you? 

Sharon: I'm good, thanks. And Priscilla, thank you so much for having me. And thank you to MPA. 

Priscilla: Thank you very much. Thanks, Sharon. Firstly, could you give us a recap of what what a reverse mortgage actually is? 

Sharon: Absolutely. So, look, a reverse mortgage is just like a normal home loan, but designed for the needs of people 60 and over as they age. The main difference is that regular monthly loan repayments aren't required if repayments aren't made. The interest is added onto the loan each month and it compounds. The total is only payable when the last borrower moves from their home. So that could be when they pass away, move to care or sell the property. The really important thing about a reverse mortgage is they do help people live a more comfortable retirement. You can use the funds for any worthwhile purpose that can help you remain in your home for as long as you choose. 

Priscilla: Thanks for that. And what's driving demand for reverse mortgages in Australia? 

Sharon: Slightly. Well, it's a real combination of factors. I think the really important thing is taking a step back is we have an aging population, not just here but internationally as well. The equity release market in the next ten years across the globe is set to triple. Since 2004, when we started offering reverse mortgages, we've seen over 8000 customers release over $1 billion of equity from their homes recently. The growth and the uptake we've seen is not just home improvements, but also consolidating debt. The purpose of consolidating debt and customers using that has continued to increase as people are entering retirement and getting older, holding debt because it is taking longer for people to buy homes and pay off mortgages. The second thing we've really seen in the past year or two increasing even further is using a reverse mortgage for ongoing income. The cost of living is rising and we're seeing that a lot of people are using the equity from their home, releasing it to help them pay for everyday bills and for ongoing expenses. And it just really gives them that flexibility. 

Priscilla: Excellent. Thank you. And could you tell us about the services that Heartland provides to broker partners? 

Sharon: We know we have an aging population in Australia and the global growth in equity release will triple in the next ten years. So the first thing I'd say about what we offer to support brokers is that if you're not a broker that offers reverse mortgages, I would really encourage you to sign up and get on board. Really helps you to provide a full service proposition and offering to your customers as they age and also the children of customers who are entering retirement. If you sign up with Heartland, we have a lot of different tools and resources to assist you. The first thing is that we offer accreditation training, so signing up with us means that you complete training. That helps you understand what a reverse mortgage is, how it works, how you can put together the application and what you need to go through with the customer. We don't just leave it there. Every application that you write, we provide a disclosure with it that goes through with you what you should be talking to the customer about and providing them to ensure the compliance obligations are met because they are different to a forward mortgage. On top of that, we provide regular monthly updates to all of our brokers via email to let you know about product changes, what is changing in the market and the regulations and also case studies and what customers look like out there in the market. 

Priscilla: Excellent. That sounds great. And I suppose for brokers as well, there is a real opportunity too at the moment, you know, with residential mortgage lending, you know, that drop in originate or decline in originations. That is a really obviously a great string to their bow. If they could look at reverse mortgages as an additional client service proposition as well. 

Sharon: Some people are struggling making those loan repayments if they're 60 or over. Brokers may be able to help those existing customers who are having trouble who are locked in a mortgage position by refinancing to a reverse mortgage to give them that additional flexibility because you can make repayments if you've got income. But it just gives you that additional flexibility to get you out of a mortgage prison if you're struggling to make loan repayments. 

Priscilla: Now, the government has extended the asset test exemption on home sale proceeds from 12 months to 24 months. How does this benefit homeowners wanting to downsize? 

Sharon: Look, the downsizing benefit and extending it to the 24 months definitely helps. People who are looking to downsize, just gives them more options and flexibility so they can really decide where they want to live, the location, and they have that money to do so without it affecting their potentially affecting their pension. However, what it doesn't necessarily do is acknowledge what people actually want to do as they get older and in retirement. Heartland worked with RMIT University on research and on aging in place and reverse mortgages. And what that research showed is over 80% of people want to remain in place. They want to stay where they are, but over 30% need to make changes to their home in order to do that. And 29% said they couldn't afford to do so. So though the government's support and incentives to assist in downsizing is a definite benefit and Heartland has helped people with that too, to help them purchase a new, smaller property that's more expensive. It's really important that people have options and they're able to decide what they want to do with their homes, with their home equity and where they want to live, because those studies also showed people are happier, healthier and more connected to their communities and neighbourhood where they are able to age in place. 

Priscilla: Excellent. Definitely can understand that in terms of, you know, someone's lived in their home a long time and they do really have those community connections, you know, where they buy their bread and, you know, the supermarket and even just the neighbours. So it would be for certain people just that really source of comfort that they can just keep that sense of community in their life as well. 

Sharon: Absolutely. And look, that connection to family memories, that ability to if you're able to stay in your home but get that extra money, you need to do the gardens for medical expenses. It really just provides customers with that other option so that people can can downsize and do have the government support there to do that in terms of their means testing. But also it can release it with a reverse mortgage as well, which can also really assist them. 

Priscilla: Heartland Finance recently increased loan to value ratios by 5% across all age groups. Could you tell us a bit about how that benefits borrowers? 

Sharon: Absolutely. So in late December 2021, we increased the loan to value ratio. So that meant an additional 5% at every single age. And what that does, it provides customers with even more flexibility than what our product had before. Not everybody needs the maximum upfront, but for those that did need that little bit of a larger loan, we could absolutely assist them when they couldn't potentially with a reverse mortgage beforehand. The other thing it does is it's not just about what you need now, it's about what you need later. So Heartland also provides, as well as that initial lump sum payment. We also offer a regular advance, which is an ongoing payment out of your loan to you monthly, quarterly or annually for up to ten years or a cash reserve like a line of credit that you can request to access in the future. Most customers only take about half of what they need upfront, and our initial LVRs are drawings up front. On average are about 12%. But then most customers also have that regular advance or cash reserve facility, and it means they can access more as they get older without having to vary their loan or get a new loan contract or even sell their property. Just gives even additional flexibility and options to customers, which is why I was so excited we were able to offer it and so proud of the benefit that it gives to people. 

Priscilla: And just finally, is there anything interesting that you think brokers need to know about reverse mortgages that perhaps is something that is I  guess misinterpreted or just something handy for brokers? 

Sharon: Absolutely. So the first thing is the fact that there are those multiple options. You don't have to draw it upfront. The second thing is that it's not just for people that can't afford to repay their loan. Partial repayments can be made at any time voluntarily, without any penalty. So customers can structure their finances with a reverse mortgage and make repayments if they want to, which reduces that compounding interest. The third thing is the uses that you can have for reverse mortgage. Some people don't realize how many things you can use it for, as well as home improvements, debt consolidation, ongoing income, the usual things you might use a loan for like car repair or replacement or medical expenses can also be used for aged care. It can be used to buy a property we can put in the money on on settlement, just like you could for a forward mortgage and also to help families. So we have seen customers come to us wanting to help their family with a reverse mortgage to see the inheritance now rather than later to help kids get into the property market or pay for education. And look, as long as it's responsible and customers have taken into consideration what that means for them, that is absolutely a great option. And and something a reverse mortgage can and should be used for as well. 

Priscilla: Thank you very much for joining us, Sharon, And thank you to all of our viewers. You've been watching MPA TV. We look forward to you joining us again soon.