Traditionally, retirees have viewed the family home as an asset. They live in it, watch it appreciate in value, and hope to one day pass it on to the children, or sell to pay for their own entry into an age care home.

The home was an asset for the future.  

However, there’s been a dramatic change, driven by new financial products, uncertain retirement income investments, the need to bolster traditional retirement income, and the mounting cost of living pressures.  

Increasingly, the family home is seen as an asset to draw on to meet or enhance current retirement needs. The kids can wait.  

To service that need, commercial lenders introduced reverse mortgages, enabling eligible retirees to borrow against their property and derive a regular income in addition to other retirement income sources.  

The loan, plus interest, was paid back after the property was sold.  

While private lenders had the highest profile in the reverse mortgage market, the Australian Government led the way in the 1980s with the government-backed Pension Loan Scheme.  

That product, the Pension Loans Scheme, was not well known. It has since been renamed the Home Equity Access Scheme and is now available to all people of pension age, not just pensioners, provided they own property to put up as equity.

The number of older homeowners taking out this government-backed scheme has soared and is expected to surge further following changes since 1 July 2022, allowing them to borrow a lump sum rather than just a fortnightly income stream.  

More than 6000 people now participate in the scheme, owing a combined $138 million, compared with 768 three years ago.  

Commentators attribute the rise in popularity to burgeoning living costs and withdrawal from the reverse mortgage market by commercial lenders. 

Through the scheme, homeowners borrow money secured against their property. If they don’t make payments, the debt compounds and is paid when the property is sold or the borrowers die.  

Commercial loans taken out since 2012 have a no negative equity guarantee, meaning borrowers cannot owe more than the value of their stake in their home. A safeguard that has only recently been added to the government scheme. 

The current interest rate for the Home Equity Access Scheme is 3.95% per annum. This rate compounds each fortnight on the loan balance until you repay the loan in full. Keep in mind, that the longer you take to repay the loan, the more interest will accumulate.  

National Seniors was successful in campaigning for this lower interest rate.  

On 1 January 2020, it fell from 5.25% to 4.5% per annum. On 15 December 2021, it was announced that the interest rate would drop from 4.5% to 3.95% per annum from 1 January 2022 - a reward for our consistent campaigning.  

On the back of the success of the scheme, we want the federal government to create a dedicated Home Care Loans Scheme to help older people unlock their equity to help them remain at home.  

Under our Budget recommendation, the government would use the existing Home Equity Access Scheme to unlock equity at a lower interest rate, but only for older Australians approved for a home care package.  

We are not proposing that home equity be used to contribute to the cost of an approved home care package. The basic care cost should be met by the government. This should be for additional care over and above what government provides.  

This would give older Australians access to a better quality of life and increase the chances they won’t end up in residential care.  

With around 80 per cent of 80-year-olds owning their own home, the take-up of such a scheme could be significant, resulting in more and more people getting help in their own homes.  

The National Seniors Budget submission on the Home Care Loans Scheme can be found here. 

For further reading: Services Australia Home Equity Access Scheme and Sydney Morning Herald.