Single women are turning to reverse mortgages as a way to get more cash flow in retirement – and some commentators say it may sometimes be because the adjustment to a “single” pension rate is too tough.
Professor Graham Squires from Lincoln University has conducted research on reverse mortgages in New Zealand.
“This research has not been conducted in New Zealand before, and it is timely given the trajectory of our ageing population and the financial pressures retirees face,” he said.
He said while reverse mortgages were relatively niche, only offered by Heartland Bank and Southland Building Society, they could become more common.
“Reverse mortgages can be useful, but they come with sensitivities around debt and intergenerational wealth,” he said. “If someone remortgages their house later in life, this can affect the level of debt a person holds, potentially passing it on to their children. Our research aimed to provide an objective understanding of how these loans are actually used.”
He said the average amount borrowed was just under $50,000 and 95% were voluntarily repaid before the borrower died.
The typical applicant was a 72-year-old single woman.
He said New Zealanders appeared more cautious than Australians, who often borrowd up to the maximum permitted amount.
“Here in New Zealand, the market is highly regulated to help protect financially vulnerable people – those who are struggling financially and repayments may be difficult to make. I believe this research shows that New Zealanders are sensible by not taking out large loans in their retirement years, and that appropriate safeguards are in place. What is vital in the future is the need for people to be financially literate, so they understand what financial options are available to them and what the most appropriate might be.”
Ralph Stewart, whose business Lifetime Retirement Income offers Lifetime Home, a different model that allows people to sell a stake in their house in return for ongoing income, said his clients were also commonly single females.
“They’re sort of left alone in the household by themselves with the house with maybe 20 years to run.”
People who were widowed or separated would find their pension dropped from the married rate of $828 a fortnight each to the single rate of $1076.
“The amount of discount to NZ Super is not proportionate to your expenses,” he said.
Claire Matthews, a banking expert at Massey University agreed being widowed could be a catalyst for people to look at other options.
“It would make it more challenging to remain in the family home. But that should also affect widowed men, although the gender difference would reflect the higher rate of women being widowed. However, I wonder to what extent it also reflects the known gender gap in retirement savings – if women have lower levels of savings, they may have a greater need to access the equity in their home.”
Liz Kohm, founder of Enrich Retirement, said New Zealanders had a conservative approach to reverse mortgages.
“Perhaps too conservative. Current retirees are part of a generation who believe that it is not good to take on debt, especially in retirement.
“This is despite the fact that the debt does not have to be repaid during their lifetime. It would be interesting to know the reasons why the mortgages are voluntarily repaid before death. Possible reasons include selling the home to move into a retirement village – where reverse mortgages are not permitted or family members repaying the debt to avoid erosion of their inheritance. In my view there is scope for retirees in New Zealand to be more relaxed about reverse mortgages and to take better advantage of the opportunity to improve their standard of living. There is a balance to be struck between spending money/wealth on oneself versus leaving more money/wealth behind for family members to spend.
“My observation is it is mostly people who have separated or divorced. Women usually end up worse off than men after a relationship breakdown – probably due to lower earning power and also psychological issues.”
rnz.co.nz
