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Older Australians are still paying off their mortgage into retirement

A recent study by the Australian Housing and Urban Research Institute (AHURI) found the average mortgage debt for older Australians has increased by 600 percent over the last three decades, with nearly half of people between the age of 55 to 64 still paying their mortgage off.

The study was motivated by concerns around the rising number of middle-aged Australians carrying mortgage debt into retirement and paying off higher levels of debt. [Shutterstock]
The study was motivated by concerns around the rising number of middle-aged Australians carrying mortgage debt into retirement and paying off higher levels of debt. [Shutterstock]

The report Mortgage stress and precarious home ownership: implications for older Australians states that the average mortgage debt to income ratio for older Australian tripled from 71 percent to 211 percent between 1987 and 2015.

The study was motivated by concerns around the rising number of middle-aged Australians carrying mortgage debt into retirement and paying off higher levels of debt in relation to house values and income.

“These trends have significant consequences for older Australians’ wellbeing and affect the ways in which older homeowners manage their wealth portfolios and labour market transitions,” according to the study.

“Mortgage indebtedness later in life also presents significant ramifications for retirement incomes policy and housing assistance programs. 

”Home ownership has often been dubbed the fourth pillar of the retirement incomes system. However, this pillar may be crumbling due to rising mortgage indebtedness and threats to home ownership’s status as Australia’s majority tenure.”

Peak body for older Australians, National Seniors Australia, believes this study shows numerous older people are still suffering mortgage stress, which can bring massive risk factors for mental health problems in seniors.

The study reflects this concern with mortgage payment difficulties resulting in mental health scores in men reducing by 2 points and in women reducing by 4 points. 

There was also evidence to suggest that late mortgage payments raise a males psychological distress score by nearly 2 points.

The peak body is asking for action from the Federal Government to reconsider raising Newstart as part of the Government’s upcoming review into retirement income.

Ian Henschke, Chief Advocate for National Seniors, believes there is a direct link between the older people paying off their mortgage and the fact that the largest age group on Newstart is people aged 55 to 64.

“Older Australians right now, face the perfect storm of rising debt, job insecurity, caused by ageism, and pension poverty,” says Mr Henschke.

“There are 184,790 Australians aged 55 to 64 on Newstart and on average they stay there for three and a half years.

“If you don’t have a job and you’re still paying off a mortgage, then you are eating into your savings and are left with nothing to retire on, which has a major impact on mental health.”

The study estimates the demand for Commonwealth Rent Assistance (CRA) will rise by 60 percent, from 414,000 in 2016 to 664,000 in 2031. Additionally, the CRA budget will increase from $972 million in 2016 to $1.55 billion in 2031.

This will also result in unmet demands for public housing for renters over the age of 55, which is expected to rise by 78 percent, from 200,000 to 444,000 between 2016 and 2031.

Considering all the potential issues that will materialise for older Australians in the future, Mr Henschke believes not raising Newstart is “completely wrongheaded thinking” from the Government.

“Both the Government and the Opposition appear to be asleep at the wheel as this car crash is happening,” says Mr Henschke.

“If the best form of welfare is a job, where are the targeted training and employment programs?

“We have a retirement income ecosystem that - to be healthy, requires people in their 50s and 60s to keep their jobs. That’s when most people traditionally had their best earnings and savings years as often their children had grown up and left home.”

Another peak body for older Australians, Council on the Ageing (COTA), agreed with National Seniors, saying that suitable housing for seniors and underinvestment in affordable housing was resulting in financial insecurity and impacting older Australians mental health.

Chief Executive of COTA, Ian Yates, says, “For older people a secure home can be the difference between good health and decline in health which is rarely factored into the housing debate, and having appropriate and secure housing is also an essential component of an effective retirement income policy. 

“Sadly, homelessness among older Australians, especially women, is increasing at an alarming rate as more people retire without owning their own home. 

“In particular, older women are feeling the brunt of a system that’s not working for them; after a break in their careers to care for family, or because of a marriage breakdown, and with less superannuation behind them. 

“This report from AHURI reveals how widespread housing stress is among older people, that it's increasing, and is impacting every generation.” 

Mr Yates wants a coordinated response from all levels of Government to fix the housing stress problem, otherwise, the effects will be felt by more and more older Australians. 

“We also know that CRA has not kept pace with rent increases and rents are so high in many parts of Australia they aren’t affordable for people on the Aged Pension,” says Mr Yates. 

“There is a real risk of a pattern developing of people using their superannuation to pay off mortgage debt, leaving them without enough funds to live on, which undermines the purpose and financing of our whole superannuation system.” 

The AHURI authors provided suggestions on what policies could potentially help the situation, including long term planning for financial security in retirement; limiting exposure to mortgage debt; reform to the housing sector to address the ageing population and insecure home ownership, and budgeting for housing assistance. 

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