More Australians are retiring with mortgage debt

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A mortgage has become a bigger and more important part of life for Australians. The number of Aussies who own their homes debt-free has halved over the past 20 years, while the number of retirees who stop working with a mortgage has tripled.

The Australian Bureau of Statistics (ABS) has done a thorough analysis of census data and has come up with some worrying data on home loans. But let me add this – you have to be careful with the data. As experts in the field of statistics have been saying for ages, there are “lies, damn lies and statistics!” (You can thank Mark Twain for that one.)

One of my favorite economists, Dr. Neville Norman, once shocked an audience I was hosting with a great statistic, but he quickly added, “85% of good stats are made up on the spot!”

The following 5 stats are not made up, but their interpretation could be debated, so let’s get the big story reveals in the SMH
today. Here is:

1. Outright home ownership has more than halved for 25-54 year olds between 2001 and 2021.

2. One in five (20%) in this group owned their home in 2001.

3. In 2021, less than one in 10 people (less than 10%) in this same age group fully own their home.

4. In 2001, 41.4% of people aged between 45 and 54 owned their home. However, in 2021, the number of people in this age bracket was only 18.5%.

5. The proportion of people with mortgages in retirement has tripled.

Domain’s chief economist and researcher, Nicola Powell, pointed to the obvious reasons for rising prices – bigger mortgages and the need for longer to pay off a house.

But it’s more than that.

The SMH Rachel Clun unearthed another reason from Chris Martin, senior researcher at UNSW’s City Futures Research Center. He said “some people use their homes as collateral and keep their mortgages open for other purposes, including buying investment properties.” Martin also argues that governments helping buyers/borrowers get settled with first-time homebuyer subsidies and the like have helped drive up house prices. He says that 20 billion dollars have been invested in housing assistance policies over the last 10 years!

But there are other reasons for the drop in the number of debt-free homeownerships and the tripling of the number of retirees living with mortgages:

1. Many older working and retired Australians have started a financial business called “The Bank of Mum & Dad” to help their older children access home ownership.

2. Compare some houses today to those 20 years ago. They have air conditioning, swimming pools, media rooms, all marble and landscaping. The impact of TV shows like The block, grand designs and so on have made Aussies DIY kings and queens, as well as committed/addicted renovators. While this means homes could be worth more, many of these renovations have forced homeowners to reduce their home’s equity and take on more debt.

3. Financial innovation of withdrawal facilities and lines of credit have allowed homeowners to finance car purchases, business expansions, vacations and school fees through their loans, reducing chances of home ownership.

4. Many homeowners have worked to build their super at the expense of mortgage death due to the desire to build a nest egg that will eventually generate tax-free income.

5. Many investor-focused homeowners have used the equity in their home loan to get an investment loan to buy another property and it put them in debt with a home loan.

6. Finally, with rising house prices, it becomes easy to ignore relatively low debt. According to data provided by the Australian Bureau of Statistics, the national appreciation over the last 10 years amounts to 70%. Most of this gain dates back to 2019.

Clearly, rising house prices have made it difficult for many people to easily pay off their mortgages, which would partly explain why retirees end their working lives with mortgages. But when you dig deeper into what Australians are doing in managing their debt to seek both better living and investment outcomes, these startling statistics become less surprising. That said, if we end up in a recession (which I don’t expect any time soon) and/or house prices crash (which is possible), then some of these adventurous investors with large debts could be in trouble.

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