$900b in home equity could save your retirement

Untapped home equity

There is an estimated $900 billion in untapped home equity in Australia, which can now be tapped to help fund retirement or subvert the disinheritance of baby boomers’ children.

Research undertaken by Household Capital shows that 80 per cent of retirees own their home. The same group has released a product that allows retirees to tap into their home equity to help with expenses, enhance their income and fund the later years of retirement.

Many go into retirement with just $200,000 in superannuation – enough to fund around 10 to 15 years of retirement. However, many are living beyond those 10 to 15 years without the necessary financial support.

“Many people aren’t financially prepared to fund 25 or 30 years of retirement,” said Household Capital chief Joshua Funder.

“Longevity has [also] disinherited the children of retirees and we need to reinvert that.

“The way to re-inherit the children of baby boomers to provide the funds they need when they need it is to provide small access to the family home for things like house deposits, education requirements.”

Retirees would be able to transfer a portion of the value of their home into either their super or investment funds, use it to support family members or even fund aged-care costs.

“The substantial savings held by Australians in their family homes is a largely untapped resource that can be better utilised to help retirees live well at home,” said former minister for superannuation and Household Capital chair Nick Sherry.

Mr Funder says the aim of the product was created to allow Australians to live well at home.

“It’s a non-financial mission, it’s about giving Australians confidence in their long-term plans for retirement, trust in their own savings and recognising that their needs are valid and can be met,” he said.

Mr Funder said the new product addresses the downsides in existing equity-access products and other approaches, such as reverse mortgages.

“The reverse mortgage market focuses on people’s short-term needs and that had the potential to leave people income-poor and asset-depleted. That’s why we insist on making responsible long-term access,” he said.

There is a proviso for getting the loan: people need to have a specific purpose for it, such as topping up appreciating assets, passing it on to loved ones, home renovations or funding aged care.

“If you wanted a lump sum and you weren’t going to invest it into long-term assets, we say no. We are not comfortable with the risk of you going short in the later years of your retirement. This is purpose-driven lending. We are opening lending up in a constrained way and doing that responsibly,” he said.

This article is published on yourlifechoices.com.au