Media Releases > Press Articles 2002

Home equity conversion: an idea whose time has come?

Fifty Plus News, April 2002, p6
Sunshine Coast Seniors Newspaper, May 2002, p14

It's time to get serious about allowing older people to use equity in their homes
to make life easier, but security and protection must be built in,
says Denys Correll, national executive director of COTA Australia

Home Equity Conversion is one of the most important, emerging new policy areas of Council on the Ageing. Older people are telling COTA that they are looking to the equity in their homes to supplement their income and capital to improve the quality of their lives and in some cases to find funds to pay for health and aged care services – especially when some people have seen the enormous growth in the value of their home in recent years.

At the same time, financial services providers are approaching COTA for advice on product development to suit the needs of older people. A number of institutions and individual business people are investigating the possibility of establishing Home Equity Conversion products in the Australian market.

COTA's starting point is that Home Equity Conversion should not be a substitute for adequate retirement incomes provision, nor should it remove the responsibility of governments to provide adequate, affordable health and aged care services.

However, home equity conversion products can be very helpful for older people. Older people's lives are changing. People are living longer and healthier lives and need a good income which will last the distance.

People are moving into older ages with greater expectations of access, participation and opportunity than previous generations. This can mean, for instance, owning a computer with internet access, regular interstate travel to visit family and being involved in a wide range of organisations and activities.

Historically, housing has been a major savings vehicle in Australia, with 75 per cent of older Australians in owner- occupied housing. The family home provides the only way many older people can obtain additional income and capital.

COTA believes that there are a number of roles for state and federal governments in Home Equity Conversion:

• providing an appropriate regulatory framework and ensure consumer protection in all new products;

• supporting small scale Home Equity Conversion programs for low income older people (especially with low value housing)

• developing appropriate housing policies for older people which aim to increase their housing options, and

• ensuring an adequate income support through the age pension system and adequate provision of health and aged care services with a strong focus on the lowest income older people

Getting the policy right is one thing but equally the structure, form, delivery and cost to older Australians of Home Equity Conversion products must be right.

Older people first and foremost want to know that their housing tenure is watertight. They want to contain the debt that they take on through any product – as we know the compounding interest factor in reverse mortgages can mean the total loss of equity in a home.

The ingoing and ongoing costs need to be fair, affordable and containable, and the interests of other family members and beneficiaries of wills need to be taken into account. There must be a rigorous independent counselling process for all applicants for home equity conversion products.

Older people want security and certainty and they wish to minimise risk.

COTA believes that a number of products will be launched in Australia over the next 12 months. It will be seeking to ensure that these products provide the best possible deal- and protection - for older people.

The "family" home is a very sensitive issue for older people as they see it as their bulwark against uncertainty and a gift to the generations coming after them. Veronica Sheen, COTA deputy director is undertaking an investigation for COTA on the issues. Full text of her recent paper to a NSW housing industry conference is available.