Nov 27, 2013

Why we shouldn’t be afraid of reverse mortgages

Yes, we are right to be wary of financial products that take money out of a home, like reverse mortgages. But properly managed, they will be necessary to ensure that we are equipped to care for an ageing population.

Paddy Manning

Crikey business editor

The family home is sacrosanct, and when innovative housing finance schemes go wrong, they go horribly wrong. Think of the US sub-prime mortgages that triggered the global financial crisis — the dreaded “NINJA” loans (to borrowers with no income, no job or assets), and the toxic collateralised debt obligations that attempted to spread the resulting risk of default.


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10 thoughts on “Why we shouldn’t be afraid of reverse mortgages

  1. Gary Johnson

    “It would be foolhardy in the extreme to count future house price growth as money already in the bank. Renegade economist Steve Keen warns that Australia’s elite seems to see rising house prices as the panacea for every problem, when in fact they may cause many of our social and economic ills.”

    Correct, it’s on everybodies lips again. The banks are leaning in mass with lowdoc loans ( 5% deposit and sometimes less )and excessive valuations all over again. Rising house prices are viewed by nearly all financial agencies as one size fits all.

    They can spin it all they like. They can invent new formulars and mathematical equations all they like, but placing the financial security of the frail and vunerable in the hands of financial institutions and Govt agencies in the form of Reverse Mortgages is an act of impure white-flag lunacy and desperation.

  2. Matt Hardin

    Why not bring back death taxes and be done with it. Also why is no one talking about increasing income tax for the top earners?

  3. The Pav

    I don’t believ that reverse mortgages are an appropriate product for the banks to offer, Many reasons but the product does have a limited space available to it but it should come from a single statutory lender

    Whilst the Gratton Institute’s suggestion that the family home be subject to CGT is reasonable it will fail as being politically untenable. Perhaps then there should be a threshold.Say $5M,that wouldn’t affect the average Joe Bloe but should be a nice little earner.

    I mean if you assume prices go up 10% then for a $500K house thats $50K tax free as against $500K for a $5M house, Takes away one leverage advantage for the rich while helping the average punter

  4. AR

    Abolish negative gearing for investors for starters, then drop the First Home sellers subsidy, consider making owner/occupier interest semi tax deductible (it is fully deductible in UK) and ..errr introduce a steeply ascending graduated tax system.
    No chance of a Swiss 1/12 referendum here and it failed by 2/3 there but it’s a nice thought.
    Finally a Tobin tax on capital movements.

  5. Dogs breakfast

    All good points here. Relying on growht in house prices is a sure way to hell. There is no question that we are currently on the upper limits of what people can pay as a % of their take home pay, and it is very hard to see that moving, and the kicker is that it even with interest rates at record lows.

    The situation now is such that even a reversion to historically normal interest rates will have a nasty effect through the whole economy.

    While taxing the home may have some benefits, it is politically untenable and not such a great deal. so muhc lower hanging fruit, the negative gearing of property top of the list.

    All countries will struggle with revenue until an international Tobin tax is instituted. There are huge benefits and huge revenues for governments in this.

  6. JMNO

    Bear in mind that when people move in low-care aged accommodation they have to pay a bond, which varies in amount from provider to provider (I know of bonds from around $200,000 to over $500,000)and that many people sell the family home to pay this bond.

  7. JMNO

    And the $200,000 was about 8 years ago so has probably gone up

  8. Edward James

    Reverse mortgage another alternative for all those people who have run out of money. Are we following the lead of governments with the almost constant round robin of borrowings, which taxpayers pay? When I buy my next place it will something I can afford to buy for cash. Edward James

  9. The Pav


    A bond is fine and selling the house makes sense.

    If you move house you sell to pay for the new one.

    Moving from the house to a NH is really the same so selling the house imakes sense.

    The problem occurs when nthere is an illness separated couple or dependants in the house but these are not insurmountable and the bond should reflect this

  10. Robert Maxwell

    A distinction I would make about the family home is that it not all savings like some other investments There is a large part of asset price inflation involved.The family home is about security, a sense of place and legacy. In that very real sense it is a home not a house. My observation is that if we allow things to be financialised they join the hyper concentration of wealth that is destroying the consumer, middle class base whilst shifting the money to rent boys.

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