Explosive mortgage debt growth putting the squeeze on older Australians

The banks' refusal to pass on the latest rate cut in full is just one of the catalysts for a fresh inquiry.

The banks' refusal to pass on the latest rate cut in full is just one of the catalysts for a fresh inquiry. Photo: Getty

Australians battling to pay down their mortgages before retirement are facing an average debt that has skyrocketed 600 per cent since the 1980s.

Between 1987 and 2015, the average mortgage debt for Australians over 55 grew from $27,000 to a terrifying $185,000 (both measured in 2015 dollar values), according to a report from the Australian Housing and Urban Research Institute (AHURI).

“Our research finds that back in 1987, only 14 per cent of older Australian home owners were still paying off the mortgage on their home. That share doubled to 28 per cent in 2015,” said report co-author Professor Rachel Ong ViforJ, of Curtin University.

The research also found the average mortgage debt burden went from 13 per cent of the average home in the late 1980s, to about 30 per cent by the late 1990s.

“Over that time, average annual mortgage repayments have more than tripled from $5000 to $17,000 in real terms,” she said.

The meteoric growth is squeezing retirement incomes, and leaving more people with debilitating mortgage stress.

Dr ViforJ told The New Daily that older mortgagors’ mental health was suffering from the added financial burden.

Some mortgagors are even experiencing symptoms similar to those of long-term health problems.

The key driver of mortgage debt growth is the housing boom and associated lifts in house prices, Dr ViforJ said.

“House prices have steamed ahead at a much faster pace and grown much quicker than income levels, meaning people are finding it more difficult to get into home ownership until later in life,” she said.

“It also means when people do get into home ownership they have to take out a much larger mortgage debt in order to be able to buy that home.”

‘Outdated’ policy settings put older Australians at risk

The increase in the number of people retiring with housing debt also has huge implications for housing assistance programs and, therefore, the government’s budget bottom line.

“We’re predicting that between 2016 and 2031 that the number of older Australians that will need Commonwealth rent assistance is going to spike from 414,000 to 664,000 – that’s a 60 per cent increase and that’s obviously going to put a lot of pressure on government as well.”

Much of the government’s thinking was “outdated” when it came to managing housing affordability for older Australians, Dr ViforJ said.

Specifically, government uses flawed assumptions about older Australians’ financial position to underpin its policies on social housing and the Age Pension.

Those policies assume Australians have paid off the majority of their mortgage when they retire, that retirees will have some form of nest egg, and will be able to get by on a modest pension.

Dr ViforJ said “these assumptions are getting rather outdated” and government needs to review public housing supply and the Age Pension size to ensure the problem doesn’t continue to swell.

“We already have more older Australians that are carrying a mortgage debt and tipping out of home ownership. If you combine that with population ageing, that’s just going to blow out into a really large number,” she said.

Making it easier for retirees to downsize their homes could also take some pressure off older Australians, Dr ViforJ said, allowing them to bring down their debt levels and free up more money.

For many retirees, downsizing isn’t an option as the stamp duty costs and difficulty finding appropriate housing in suitable neighbourhoods make it untenable.

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