Number of Australians accessing home equity scheme soars

home equity access scheme reverse mortgage

The number of older Australian accessing reverse mortgages through the government has surged in the past three years and is expected to keep rising, Services Australia data shows.

The Home Equity Access Scheme (HEAS) allows older Australians to access a tax-free loan through the government, using equity in their home as security.

Similar to a reverse mortgage from a bank, the HEAS – formerly known as the Pension Loans Scheme – allows eligible seniors to use their primary residence as a source of extra retirement income.

Figures released by Services Australia and reported in The Age show the number of people accessing the scheme has jumped from 768 three years ago to 6041 at the end of June this year.

Read: What is the Home Equity Access Scheme?

It’s perhaps no surprise that the increase coincides with an astronomical rise in the cost of living in that time due to the pandemic, global instability and soaring inflation.

But the number is predicted to grow even further, with the introduction of new rules on 1 July.

Previously, HEAS recipients had the loan amount paid as a regular income payment on top of their pension, up to 150 per cent of their pension amount.

But from this financial year, you can opt to have the loan amount paid as a lump sum.

The current interest rate is 3.95 per cent per annum.

Read: What real estate can and can’t be used for the home equity scheme?

Gerard Brody, chief executive of Consumer Law Action Centre, told The Age and Sydney Morning Herald he expected the change to drive demand for the scheme.

“The reality is there’s a lot of wealth tied up in housing in Australia and people are looking at ways to use that wealth during their lifetime,” he says.

“I can see why this is an option that people are considering.”

Mr Brody added that he would encourage older Australians to crunch the numbers to see if this compounding debt is the best fit. He recommends considering other options such as selling your home, downsizing and pocketing the profit.

Read: Will a loan affect your Age Pension eligibility?

The rise in reverse mortgages from the government has had an inverse effect on the commercial reverse mortgage market.

Data from the Australian Prudential Regulation Authority (APRA) shows the total value of outstanding reverse mortgages with commercial banks was $2.21 billion at the end of the March quarter, down 18 per cent from $2.7 billion in the same period in 2019.

The fall is even having a direct impact on lenders.

Perth-based Boomer Home Loans raised $13 million in capital earlier this year, saying it would be specialising in loans and refinancing – including reverse mortgages – for the over-55s market.

But the dire market for commercial reverse mortgages has caused some backers to pull their money. Earlier this week, Boomer went into voluntary administration and is currently on the hunt for new investors.

Were you aware of the Home Equity Access Scheme? Do you think it could benefit your situation? Let us know in the comments section below.

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Written by Brad Lockyer

Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.

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