Mortgage debt ruining retirement plans

Record numbers of older Australians are battling to pay off their mortgages before retirement.

mortgage debt

Average mortgage balances among older Australians ballooned by 600 per cent between 1987 and 2015 – and are predicted to continue upwards. The consequences for retirees’ incomes and health, for the Federal Budget and housing policy are considerable.

According to data collected by the Australian Bureau of Statistics (ABS), about 80 per cent of homeowners in the 55–64 age group in 2001 were mortgage free. Fast forward 15 years and only 56 per cent of that group were mortgage free.

Over the same period, home-ownership rates for 55 to 64-year-olds had dropped from 86 per cent in 2001 to 81 per cent in 2016.

Based on a report by Australian Housing and Urban Research Institute (AHURI), academics at The Conversation predicted that the number of outright homeowners aged 55-64 would further plunge by 42 per cent by 2031, from more than 1.2 million in 2016 to 708,000 in 2031. “On the other hand, the numbers of older mortgagors and private renters are projected to soar [by 2031],” the article continues. “Among 55-to-64-year-olds, mortgagor numbers jump from under one million to over 1.6 million, a 71 per cent increase. The number of private renters rises by 54 per cent from 369,000 to 567,000.”

The implications for budget planning are considerable.

The anticipated changes will see a big rise in the number of older Australians eligible for Commonwealth Rent Assistance (CRA), with those payments forecast to blow out from $972 million a year in 2016 to $1.55 billion a year in 2031.

“On its own, demographic change is forecast to lift the number of CRA recipients, and the real cost of providing CRA, by around 35 per cent,” the article continues.

“Add the projected increases in the private rental share of the housing stock and the number of CRA recipients is estimated to rise by 60 per cent – from 414,000 to 664,000 – between 2016 and 2031.”

Conversation authors Professors Rachel Ong ViforJ and Gavin Wood and research fellows Melek Cigdem-Bayram and Silvia Salazar say they expect to see public housing waiting lists grow. They estimate the number of older people eligible for public housing will rise from 247,000 to 441,000 in 2031 – a 79 per cent increase.

As a result, demand for public housing would grow and a spike in homelessness among older Australians was a certainty. “If all else remains unchanged in the housing system and economy, seniors on public housing wait lists will increase by over 75 per cent,” the authors say. “That’s more than twice the 35 per cent increase in the population of seniors between 2016 and 2031.

“Community housing organisations would also come under increasing pressure.

“As the number of senior private rental tenants grows, governments will need to reform tenancy regulations in ways that enable housing retrofits to meet mobility needs and allow for ageing in place. Tenure insecurity in the rental sector could hinder planning for aged support services.”

Prof. Ong ViforJ said: “On the policy front, the Government has to be really looking ahead and preparing for the fact that they might see more people tipping out of home ownership later in life and moving into the rental system.”

High mortgage debt posed a further risk as many among older people would spend their superannuation to pay off their housing debt, leaving them with insufficient funds to live off, she said.

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    COMMENTS

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    Not Amused
    28th Aug 2019
    10:34am
    And some non-home owners, seriously suffering from the green-eyed monster, continue to advocate for including the hard-earned family home in the pensions asset test? According to this story, concerns about increased government subsidised housing is one more argument against dis-incentivising home ownership by financially punishing those who go without to house themselves in their old age.
    GeorgeM
    28th Aug 2019
    7:41pm
    Correct, Not Amused, promoting home ownership by Australians should be a strong priority of any sensible Govt.

    However, one serious failure has caused more damage than we are told - the massive predatory actions of foreigners, especially heaps of Chinese, buying up our properties thus driving up prices and reducing availability for the local people. Our Govt needs to stop such uncontrolled speculative investments, as many apartments in particular are left unoccupied. A quick action would be to force all foreigners to return their properties to the Govt if they haven't occupied it or rented it for any period of more than 6 months. We should get a lot more available for renters at reasonable rents, or even for buyers from frantic sales from these leeches.
    Farside
    1st Sep 2019
    1:19pm
    Any data to back those claims up George? The FIRB and others have frequently reported that foreign ownership is more perception than reality. I understood Chinese interests represented about 30% of the total foreign investment in residential property, most of which has been in new rather than established properties in NSW and to a lesser extent Victoria. Either way that investment seems to have fallen off a cliff in the past year or so.
    purplejan88
    28th Aug 2019
    10:40am
    a late in life relationship with a late in life mortgage is killing us so we are selling up. we need to be able to put money into super for our time in life in about 7 years. we will purchase a bus to live in and eventually travel in thus reducing our cost of living hugely so we can build our super up.
    TREBOR
    28th Aug 2019
    1:46pm
    The ex and I are in the opposite boat - we bought together since that was the only way to own again, and to keep capital rather than SKI it all over the world - a near impossibility anyway given the ex's disabilities. We have a mortgage, but it's not too bad compared to many such going the rounds at this time...
    Valalan
    28th Aug 2019
    11:15am
    Something should be done to call a halt to the reverse mortgage people who talk couples into taking out one from their house values. In 2006 we were talked into taking $100,000.00 from the equity in our home which was paid for at that time.However there was no option of paying the interest and our house was valued at $450,000.00 and expected to rise in value. Now it is around $350,000.00 and the interest on that loan is now $235,000.00 which as I am now a widow leaves with very little equity to leave my children.There should be a limit on the number of years this can stretch to.Bluestone investments.
    sunnyOz
    28th Aug 2019
    11:24am
    Agree about reverse mortgages being a disaster, but your biggest mistake is talking about 'leaving anything for the children'. Please, your first priority is to yourself, spend every cent on yourself. Your kids have no right to be expecting anything from you.
    Tanker
    28th Aug 2019
    3:13pm
    Spot on sunnyOz retirement funding is intended to finance YOUR retirement not leaving anything for the kids. Reverse mortgages are a real trap whichever way you look at it.
    Tanker
    28th Aug 2019
    3:13pm
    Spot on sunnyOz retirement funding is intended to finance YOUR retirement not leaving anything for the kids. Reverse mortgages are a real trap whichever way you look at it.
    adbob
    28th Aug 2019
    3:56pm
    @Tanker

    Well that's the recently invented story.

    Those of us who worked and saved were told that our savings would be to *supplement* our age pension - not to replace it and pay for the lifestyles of those who didn't.

    It has only been called welfare recently and the notion that anyone with savings should live on them until they've all gone while goverments (of both stripes) buy the votes of the dissuolute with our money is achange of tack.

    To rub salt in the wound they (ScoMo as treasurer - but Shorten didn't object) - neither did Shorten propose to undo it had Labor (so-called) come to power in the recent federal election).

    If you look at the advice financial advisers and super funds were giving out before this change came along you might get a shock.
    Farside
    1st Sep 2019
    1:31pm
    So house valued at $450k in 2006, is now valued at $350k and the $100k borrowed has compounded to to $235k in that time. Unfortunate to be between the rock and the hard place but life happens and investment choices have risks. Have you considered whether your house will continue to reduce in value and taken action to mitigate the situation?
    sunnyOz
    28th Aug 2019
    11:20am
    A major problem leading to this is the lack of employment for seniors, and Newstart. Combine these 2 and by the time you reach retirement, you are either homeless or left with a mortgage on the aged pension. I worked hard, bought my little place, and had hoped and planned to work for some years more so as to have no mortgage. A bully boss put an end to that, cutting my contract and - as I soon found out - refusing to give me an adequate reference. So now I live solely on a part pension, due to my mortgage. Down sizing isn't an option, as I am not going to move into a caravan park or tent. God help me if the place needs any maintenance.
    Valalan
    28th Aug 2019
    11:57am
    A friend has just informed that in the eastern states a subsidy of up to $60,000.00 is being granted to pensioners who are struggling and household items such as fridges etc are being replaced for them.It's a federal thing it seems.Anyone know anything about that and if it's available in WA
    Cheezil61
    28th Aug 2019
    4:37pm
    Valalan you are funny! $60,000 would have to be a typo there, 6$ or 60cents be more realistic! Since when do they give battlers anything?
    older&wiser
    30th Aug 2019
    12:13pm
    Valalan - I too am laughing!! 'Subsidy of up to $60,000 granted to pensioners' - I don't think so. Having just tried to help my elderly aunt remain in her aging home, she had to jump through hoops and fill out nearly 48 pages - just to get some hand rails in her bathroom and toilet worth less than $180, and took weeks. Even the previous Council run Home Assist had been contracted out to another business and prices had increased considerably. In the end, the cost of maintaining the home on her own, and after a washing machine leak, became too much and she has moved into an Aged Care Facility.
    The government is more interested in pushing people OUT of their homes, not keeping them in it.
    KSS
    28th Aug 2019
    1:07pm
    How many of those retirees with mortgages upsized their accommodation before retiring to preserve assets for their kids and maximise aged pension payouts?
    TREBOR
    28th Aug 2019
    1:49pm
    We down-sized and up-priced to suit disabilities - from rural property to town home.... does that mean, since we did the opposite, we get a bonus?

    I doubt very many actually do or did as you suggest - man - you gotta be rich to even think that way...
    inextratime
    28th Aug 2019
    1:08pm
    If we had two tiers of government instead of three the amount of money saved would enable the government to award everyone over 65 with a set amount of pension regardless of home ownership or personal wealth. That would also enable the dismantling of centrelink a monolith based on the incredibly complicated pension system that costs as much to run as it saves. But all that takes brave government and in this very wealthy country no-one has got the gonads to implement.
    Tanker
    28th Aug 2019
    3:10pm
    Centrelink handles much more than age pensions so I an afraid you as way of the mark.
    Tanker
    28th Aug 2019
    3:10pm
    Centrelink handles much more than age pensions so I an afraid you as way of the mark.
    inextratime
    28th Aug 2019
    4:12pm
    Much more Tanker ? How far off the mark ? Details please. Ok lets say it reduces the need of Centrelink by 50%. 50% less wages, overheads and peripherals. But you missed my main point. Three tiers of government, massive duplication, massive overheads. But why would our comfortable legion of pollies change a system that would not benefit them ?
    Technology is now a major part of administration and did not exist at the time of Federation. Why should an antiquated form of government exist despite far more efficient system being available and all they do is belly ache about making budgets and chasing down oldies when the answer is obvious to any thinking person.
    GeorgeM
    28th Aug 2019
    7:49pm
    inextratime, you are correct, some major reforms are sorely needed as the successive Labor & Liberal Govts can't see beyond the tips of their noses and have taken many short term destructive actions which have always attacked those who can't / don't fight back such as Retirees.

    Universal Age Pension with NO tests, based only on Age & Residency would go a long way to Govt getting out of our lives and enabling Australians to do better than that if they can while benefitting the economy and reducing massive Centrelink costs. Only massive pressure on them from Retirees (e.g. threats to remove them at the next election), such as at the impending Retirement Incomes Review, can alter their thinking and make them consider such major reforms.
    adbob
    28th Aug 2019
    1:08pm
    The last paragraph:

    "High mortgage debt posed a further risk as many among older people would spend their superannuation to pay off their housing debt, leaving them with insufficient funds to live off, she said."

    is nonsense.

    That's actually a smart thing to do as it will usually enable them to qualify for a full Centrelink Age Pension - a very generous amount - more than most self-funded retirees live on themselves - until you get into the upper range of those folk.

    If they still have a bit left in super then that's even better - as a recent article here pointed out.
    TREBOR
    28th Aug 2019
    1:57pm
    'a very generous amount' - you've been listening to that 'social security minister' chick with the training wheels.... **eyes roll** .... as someone said - that's the kind of verbiage they use in Lib meetings (not for public consumption) - and we pay these people handsomely to carry on like total amateurs. **

    If SFRs - an increasingly green-eyed lot it seems - are on less than pension - their finances are not structured correctly and they have built traps for themselves. I know such a couple, in business all their lives and now absolutely struggling with mega-assets and no money. One has actually retired and cannot get a pension through retaining connections with the business, the other continues to work part-time at the business.

    Without knowing all the ins and outs of their situation, it's hard to say - but it sounds like 'sell the business' and consolidate your funds and RETIRE fully. Better still - sell up the high-value house and move coastal..... here is still good... they could get a house here for half a mill...... but it keeps going up and up .....


    ** new rules - when you enter parliament you are doing so as a service to the people - you will start on minimum wage and work your way up... and will receive no mega benefits such as massively enhanced super etc... your genuine costs of work will be covered ....

    Let's see how many line up for the easiest gig on the fattest in the land then ....
    panos
    28th Aug 2019
    8:21pm
    Sage advice here from adbob in the second para
    Farside
    1st Sep 2019
    3:19pm
    adbob and TREBOR hit the nail on the head. Those SFRs on less than pension should restructure finances and spend some of the kids' inheritance rather than eke out an unnecessarily subsistence lifestyle. Admittedly it would be appreciated if the government restored the pre 2017 changes to the taper and once again many SFRs would qualify for a part-pension or there was a universal pension but that's not the case. Cards have been dealt and it is time to play the hand you've been given instead of pining over what might have been.
    TREBOR
    28th Aug 2019
    1:43pm
    Massive changes in the social and economic landscape have ensure that will be the case - with easy and common divorce and consequent splitting of the atoms and of asset stripping, often in later years - and then you can add in the dereliction of duty of management these days to actually create a steady and reliable working environment.

    Then add in the utter stupidity of 'ageism' and the amazing assumption that older people are 'out of touch' and 'can't learn the new stuff' etc... and never forget that 'baby boomers' have a more solid view of their rights at work and are often prepared to take the ball up to twerp management..... poor little post-boomer egos simply can't cope with being told they're incompetent etc and being shown how...

    Government has its role here in its constant attacks on rights and prerogatives in society and its endless campaigns trying to secure its hegemony over every part of daily life..... (read that carefully)....
    Chris B T
    28th Aug 2019
    2:18pm
    My understanding of "Responsible Lending" and Lending Requirements that Home Loans can't go beyond your Retirement/OAP Age.
    Mature Before You Reach OAP age.
    If not you are the PERSON who requested the loan to be Beyond.
    Cry, Scream,Yell but don't say I Did Not Realise what was about to happen.
    MICK
    28th Aug 2019
    5:27pm
    I saw the story last night.
    So who you gonna blame? The greedy banks or individuals who wanted a punt on house prices?
    Pensioners and those approaching retirement would now not get a loan so the problem no longer exists....for the moment.
    Those who are in this position did not accept that prices can go down as well as up. Its their fault and I find it annoying reading and viewing the violin from people who put themselves into this place. Humanity never much learns or changes it bahaviour.
    Farside
    1st Sep 2019
    3:22pm
    as the old saying goes, those who do not learn history are doomed to repeat it.
    Fair Dinkum
    29th Aug 2019
    8:08am
    My concern is not leaving money to the kids but to make sure government doesn't get it. You go into a retirement village then into care the retirement village and government get the majority of any thing you have accumulated so if possible avoid these. The only advantage of moving to a retirement village is the social network.becaust the money you save will pay for maintenance that you can no longer do and a house cleaner.the maintenance cost of most retirement villages is around $450.00+per month and you loose something like 3to5 percent per year of your original purchase price so this money could pay for a lot of help in your own home. But if you are a very sociable person and need to be with people and not be isolated then villages are the way to go
    Pooh!
    29th Aug 2019
    11:47am
    Can pensioners/ part pensioners take out loans to pay off a relatively small amount owing on their mortgage, which may reduce the monthly commitment and enable them to stay in their home longer?
    adbob
    29th Aug 2019
    2:32pm
    What would be the good of that? A housing loan is usually the cheapest way for individuals to borrow money.

    I'm not sure whether Centrelink would then allow the whole house value as an exempt asset but allow the reulting loan as adeduction against other assets. That's an interesting question.

    In most ways they see things "their way" and "see through" artificial transactions that are done just to get extra money from them - but you never know.

    A lot of people who "fail" the assets test could get back into part (or full) pension claiming by shifting to a more expensive house - the opposite of the downsizing that we're encouraged to do - although a smaller house in a more expensive area is possibility.

    Of course stamp duty (huge in SA and VIC) is bit of a killer there - also the scare that houses may not always be exempt in the future.
    older&wiser
    30th Aug 2019
    12:48pm
    Agree adbob - what good would that do? You would be really pushed to get a loan on a lower rate than your housing loan, so it would be totally useless. Why borrow $30,000 at 6% to pay of a home loan balance of $30,000 at 4%?
    And no - Centrelink do not offset a home loan against an asset. I have only just this past fortnight helped my single brother in a similar situation when he retired. As an example - if you have $195,000 in super, but have a $90,000 balance on mortgage, Centrelink STILL calculate the deeming rate on the $195,000, losing $11 a fortnight from pension. They don't calculate the deeming rate on $195,000 less $90,000. But - pay the mortgage off so you have a balance of $105,000 in super and you get the full pension.
    If your super is paying a better rate than 3%, then you could be better off leaving the super and mortgage as is, and using the super amount you have to draw on, to pay for your mortgage payment.
    Elizzy
    29th Aug 2019
    4:59pm
    We knew we could never pay off the mortgage by my retirement age (66) so we sold the house and purchased a modest house outright in a European country where housing costs are cheap. OK, we would rather be in Australia, but we have wholly owned shelter and in general, lower living expenses, and manage on the pension. We have very little super. So what do you do? I can see many more retirees doing the same thing in future years, or living permanently in vans or boats.