A concerning trend has emerged in the retirement landscape of New Zealand, and it's time we shed some light on this issue. Single retired women are increasingly turning to reverse mortgages, a move that could have long-term implications for their financial well-being and that of their families.
Let's delve into this topic and explore the reasons behind this trend and its potential consequences.
The Rise of Reverse Mortgages: A Controversial Solution
Reverse mortgages have gained attention as a potential cash flow solution for retirees, especially single women. Professor Graham Squires, a researcher from Lincoln University, has studied this phenomenon in New Zealand. He highlights the timely nature of his research given the aging population and the financial pressures retirees face.
While reverse mortgages are currently niche products offered by a select few banks, Professor Squires believes they could become more common. He cautions, however, that these loans come with sensitivities around debt and intergenerational wealth.
"If someone remortgages their house later in life, it can affect the level of debt and potentially pass it on to their children. Our research aimed to understand how these loans are used and the impact they have."
The average amount borrowed through reverse mortgages is just under $50,000, and an impressive 95% of these loans are voluntarily repaid before the borrower's death.
The Typical Applicant: A 72-Year-Old Single Woman
The typical applicant for a reverse mortgage is a 72-year-old single woman. New Zealanders, according to Professor Squires, are more cautious than their Australian counterparts, who often borrow up to the maximum permitted amount.
"Here in New Zealand, we have regulations in place to protect financially vulnerable people. I believe this research shows that New Zealanders are sensible in their approach to retirement loans, and that appropriate safeguards are working."
The Impact of Single Pension Rates
But here's where it gets controversial. Experts suggest that the adjustment to a "single" pension rate may be prompting women to explore alternative financial options, like reverse mortgages. When a person becomes widowed or separated, their pension drops from the married rate of $828 a fortnight to the single rate of $1076.
Ralph Stewart, whose business Lifetime Retirement Income offers an alternative model, notes that his clients are also commonly single females. He explains that these women are often left alone in their households with a significant portion of their mortgage still to pay off.
Claire Matthews, a banking expert, agrees that widowhood can be a catalyst for people to explore other financial options. She highlights the gender difference, noting that women are more likely to be widowed and, therefore, face this financial challenge.
The Gender Gap in Retirement Savings
And this is the part most people miss. The gender gap in retirement savings plays a significant role here. Liz Kohm, founder of Enrich Retirement, believes that New Zealanders have a conservative approach to reverse mortgages, which may be too cautious.
"Current retirees are from a generation that believes taking on debt, especially in retirement, is not good. However, the debt from a reverse mortgage doesn't have to be repaid during their lifetime. It would be interesting to understand why these loans are voluntarily repaid before death."
Kohm suggests that the reasons could include selling the home to move into a retirement village or family members repaying the debt to protect their inheritance. She believes there is an opportunity for retirees in New Zealand to be more open to reverse mortgages and improve their standard of living.
The Impact of Relationship Breakdowns
Kohm also observes that most people taking out reverse mortgages are those who have separated or divorced. Women, she notes, often end up financially worse off than men after a relationship breakdown, likely due to lower earning power and psychological issues.
So, what do you think? Is the conservative approach to reverse mortgages in New Zealand justified, or is there an opportunity for retirees to improve their financial situation? We'd love to hear your thoughts and opinions in the comments below!
