University to probe reverse mortgages

The University of New South Wales' business school is starting a two-year research project on reverse mortgages to find why their uptake has been slow in Australia.

Reverse mortgages allow retirees to borrow money against their homes to supplement their retirement income. From July 1, they will be available to a wider set of Australians after changes from last year's budget.

The new study is funded by the university and Household Capital, which provides retirement funding solutions to retirees. It will investigate the theoretical and empirical aspects of reverse mortgage demand and product design, under senior research fellow Dr Katja Hanewald and Professor Hazel Bateman.

"While economic theory predicts that households would demand reverse mortgages to improve retirement funding, the take-up rates for reverse mortgages are low in Australia and internationally," Hanewald said.

"Combining our research track record and Household Capital's industry expertise, we will design, and field test, an online experimental survey to study the role of mental accounting in the demand for reverse mortgages."

An ASIC report into the sector last year said reverse mortgages from authorised deposit-taking institutions totaled only $2.5 billion in December 2017 even though they have grown steadily since the Great Financial Crisis from $1.3 billion in March 2008.

The said borrowers typically entered reverse mortgage arrangements as a result of one or more unforeseen events such as divorce, losses in superannuation, poor health, early retirement and higher costs of living.

ASIC reviewed 17,000 reverse mortgages, 111 consumer loan files, lender policies and complaints. It found that borrowers' long-term needs or financial objectives were not adequately documented in almost all the loan files ASIC reviewed.

Household Capital chief executive Dr. Joshua Funder said: "Overseas markets have been expanding rapidly to provide access to home equity to fund retirement."

"We're delighted to work with UNSW Business School to understand the needs of Australian retirees and how we can improve access to home equity to improve retirement their funding."

Read more: AustraliaASICHousehold CapitalUniversity of New South WalesAustraliansDr Joshua FunderDr Katja HanewaldGreat Financial CrisisProfessor Hazel BatemanUNSW Business School
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