Forced Reverse Mortgages Threaten Australia’s Social Fabric
A proposal to force pensioners into a national reverse mortgage scheme threatens to fundamentally change Australia’s social fabric and the relationship we have with the family home, potentially also leading to a collapse in house prices.
To solve the problem of funding retirement pensions into the future, the Centre for Independent Studies has proposed Government incorporate the family home in a pension assets test and legislate for a default national reverse mortgage scheme, the income from which would be counted in the income test.
Millions of Australians have worked hard to achieve home ownership. In fact, over 80 per cent of retirees own their own home and the vast majority have paid off their mortgage.
Along the way, these same retirees have paid income tax as well as significant amounts of Stamp Duty on property purchases, thereby helping Government fund community infrastructure and services that benefit everyone. Their reward is the security of being unencumbered in retirement and having an asset to leave their children.
This proposal could see equity in family homes hollowed out over time, so that there’s little or nothing left for children to inherit, making it even harder for young people to get a foot on the property ladder and own their own home.
Some have likened the proposal to ‘strip mining’ the young in order to solve a budgetary problem. Concerns have also been raised about reverse mortgages rendering an increasing number of illness or dementia-affected retirees unable to afford a nursing home, when it is most needed.
Ultimately, one has to ask what the incentive will be for young people to buy their own home and aim for financial independence, if Government then proposes to take that away in retirement.
There’s also the question of who will have the money to buy a house if there is not some form of inter-generational wealth accumulation within families. If average Australians cannot afford to buy a home, a collapse in property values could follow, bringing with it a massive, long-term, negative impact on the economy and the end of the ethos of a fair go.