In handing down the Retirement Income Review the government has suggested equity from the family home can play a bigger part in funding people’s retirement but a university professor has responded proposing several significant changes to the Australian financial landscape before this can happen.
“If the government is genuine about making equity release a more prominent method of retirement funding, and addressing this gap, it needs to address low financial literacy in this area,” RMIT Associate Professor in the School of Economics, Finance and Marketing Stuart Thomas said.
To this point he revealed university research on reverse mortgages indicated most Australians don’t understand what a reverse mortgage is nor the part it can play in funding their retirement.
“Currently, equity release products – and reverse mortgages in particular – are often being used to pay out current debt, ahead of other uses such as home improvements to allow them to stay in the home longer, or for income support during their retirement,” he noted.
According to Thomas, the reverse mortgage and home equity release market needed to evolve to allow it to play a significant role in funding people’s retirement.
“Australia also lacks a deep and diverse equity release market, with disjointed regulation between states and the federal government among several barriers to entry for innovative new products,” he said.
“This needs to change if equity release is to play a more prominent role in funding retirement in Australia.”
Equity release provider Homesafe Solutions welcomed the report’s finding that the ability to use the value of the family home to fund a person’s retirement.
“Accessing the equity built up in the home, to enable older Australians to fund a comfortable and independent retirement, makes sound financial sense for many senior Australians, and many already use this strategy,” Homesafe Solutions chief operating officer Dianne Shepherd said.