Federal Budget 2018: Every homeowner over 65 offered reverse mortgage to unlock home's equity

The federal government is now offering every homeowner over the age of 65 a reverse mortgage worth up to $11,799 per year for the rest of their lives.

Initially a scheme for just part-pensioners, anyone over the retirement age can now access equity in their homes without selling them, as part of the sweeping budget measures aimed at improving the health and wealth of older Australians.

It’s an ongoing problem many older Australians face, with their wealth tied up in property while they remain relatively cash-poor.

Under the new plan, if a 66-year-old took up the proposed offer and lived until 91, he or she could receive a total of $295,000 worth of ongoing payments which would simultaneously be removed from their equity in their home.

It’s a huge source of wealth, according to Grattan Institute figures released in March, which claim Australians between the age of 65 and 74 are today $480,000 wealthier in real terms than households of that age bracket 12 years ago, but would typically have to sell their home to access the money.

This year’s focus on helping older Australians “age in place” in their own homes is a far cry from the incentives announced last year to actively encourage the same group to sell their large empty homes to help with housing affordability.

Measures aimed at improving housing affordability for first-home buyers, younger owner-occupiers and renters were not part of this year’s budget.

The previous Pension Loans Scheme was only available to retirees on a part-pension, but is now available to all retirement-aged homeowners, and at an increased maximum rate of 150 per cent of the aged pension.

The loan is generally repaid when the house is sold, and loan-to-value limits exist to prevent borrowers owing more than the value of their property.

An interest rate of 5.25 per cent will be applied to the loans – a rate unchanged since the Pension Loans Scheme was introduced in 1997 and typically about 0.5 per cent below the rate offered at most banks – and the measure is set to cost the budget $11 million over the next four years.

About 1.8 million age pensioners own their home in Australia, according to the budget papers, including 1.1 million full pensioners and 700,000 part-rate age pensioners.

The plan could be seen as improving the already-positive outlook for retirement-aged homeowners, with a Grattan Institute report on housing affordability in March noting over 65s are the only group of Australians seeing an increasing rate of home ownership.

“Retirees who have paid off the mortgage are insulated from rising housing costs, a substantial safety net if they exhaust their retirement savings,” the report, written by chief executive John Daley and fellow Brendan Coates, reads.

“Home ownership is particularly attractive for retirees because in effect only the first $200,000 of the value of the home is included in the age pension assets test.”

But as the life expectancy of Australians grows, so to do the financial pressures of retirees.

The measure forms part of a series of changes dubbed “more choices for a longer life package”, which includes options for recent retirees to boost their superannuation savings, increase the amount they can earn before affecting their pension payments, and funding for education and training programs for older workers.