According to the Australian Housing and Urban Research Institute’s (AHURI) latest report, titled Mortgage stress and precarious home ownership: Implications for older Australians, the value of mortgage debt held by Australians aged 55 and over have increased seven-fold from $27,000 to $185,000 between 1987 and 2015, while the average debt-to-income (DTI) ratio tripled from 71 per cent to 211 per cent over the same period.
Further, nearly half of home owners between 55 and 64 years old are still paying off their mortgage, up from 14 per cent in 1987.
The AHURI report noted that the average annual mortgage repayments more than tripled from $5,000 to $17,000 in real terms from the late 1980s to the late 1990s, while the mortgage debt burden among older Australians increased from 13 per cent of the value of the average home in the late 1980s to around 30 per cent over the same decade.
Given these statistics, the report raises the question of the role that home ownership plays in supporting the financial wellbeing of retirees today.
“The role of home ownership in promoting financial wellbeing in retirement is particularly important in Australia. The OECD (2013) reports that Australian pensioners have average equivalised household disposable incomes of roughly 60 per cent of national average equivalised household disposable income for all households, the lowest among 34 OECD countries,” the AHURI report stated.
“An important reason for the Australian elderly’s relatively low income is a public pension program that provides a low base rate of pension, compared to other countries with a similar per capita GDP.”
The report further found a strong correlation between mortgage stress and poor mental health, with the effects of mortgage stress more pronounced among women.
“Psychological surveys measuring mental health on a scale of 0 to 100 reveal that mortgage difficulties reduce mental health scores for older men by around 2 points and an even greater 3.7 points for older women,” AHURI stated.
“Older female mortgagors’ mental health is more sensitive to personal circumstances than older male mortgagors. Marital breakdown, ill health and poor labour market engagement all adversely affect older female mortgagors’ mental health scores more than men’s.”
Professor Rachel ViforJ, professor of economics at Curtin University and the lead author of the AHURI report, said the increasing trend in mortgage indebtedness will have negative impacts on the health of a growing proportion of the Australian population.
It is estimated that 439,000 Australians intend to retire in the next eight months despite average savings being below the recommended level, according to Roy Morgan.
“As growing numbers of older Australians carry mortgages into retirement, the rising trend in mortgage indebtedness will have negative impacts on the wellbeing of an increasing percentage of the Australian population,” Ms ViforJ said.
Commenting on the research, National Seniors Australia chief advocate Ian Henschke said it is “no coincidence” that Australians aged 55 to 64 represent the largest age group on Newstart.
“Older Australians right now face the perfect storm of rising debt, job insecurity caused by ageism, and pension poverty. There are 184,790 Australians aged 55 to 64 on Newstart, and on average they stay there for three and a half years,” Mr Henschke said.
“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.”
According to the AHURI report, rising mortgage indebtedness will also have an impact on Australian policymakers.
“The social policy role of home ownership has allowed Australian governments to set the age pension at relatively low levels on the assumption that elderly retirees will typically have no mortgage payments to meet, and therefore can survive on smaller pensions,” the report stated.
“However, the growing trend towards renting, as significant numbers exit home ownership later in life, has called into question the adequacy of the age pension for elderly Australians bearing rental housing costs in their retirement years.”
The report noted that while older mortgagors are willing to run down their superannuation to boost wealth stored in home equity when at risk of not meeting mortgage repayments, there will be growing pressure on the age pension system.
“If superannuation balances are being run down to pay off mortgage debt rather than to sustain spending in retirement, pressure on the age pension system will increase as growing numbers of Baby Boomers retire with mortgage debt owed against the family home,” the AHURI report stated.
“Another concern is that resulting wealth portfolios are dominated by property and therefore more exposed to investment risks posed by falling house prices.”