DomaCom chief executive Arthur Naoumidis said current barriers to more take-up of home equity release included a lack of regulated products for financial planners to advise on, dealer group reluctance to include property as an asset class on APLs, and regulations that penalised retirees for using their home to fund their cash flow.
“Historically, equity release products have been a debt product, so a lot of advisers can’t advise on them, or if you’ve got the home reversion scheme, that’s a real estate product,” Mr Naoumidis said.
“But who is best to advise on an equity release – is it a mortgage broker, is it a real estate agent? No, it’s got to be a financial planner because they’ve got all the information around Centrelink, estate planning issues, and they can factor in the full picture for the client.”
Mr Naoumidis said DomaCom had made a submission to the Retirement Income Review underlining the degree to which regulatory barriers needed to be addressed to incentivise retiree take-up of equity release, despite the progress already made by the government in this space.
“If people are penalised by using their own equity to fund their lifestyle they are not going to – the government needs to remove barriers, and we think it has started to do that by introducing the downsizer legislation,” he said.
“The worry of advisers is if people get penalised for taking an exempt asset and making it non-exempt, all of a sudden the client gets less pension.”
Mr Naoumidis said DomaCom had sought clarity from government that funds released through the group’s equity release product could be contributed to super through the downsizer contribution, and expected a binding ruling in the next couple of weeks.
He added that given the portfolio losses experienced by retirees as a result of the COVID-19 crisis, advisers and clients would need to get more comfortable with using the home as part of their “balance sheet” to fund their retirement.
“In the last six months dividends have been slashed and interest rates for term deposits are next to nothing, so self-funded retirees can’t live off the income of their super,” Mr Naoumidis said.
“If they start having to distribute capital instead of income, their super is going to dissipate very quickly. The obvious answer to that is to adjust your balance sheet, so if you’ve got a million dollar house and $500,000 in super, you take $300,000 from your house and put it into super. Your balance sheet hasn’t changed, but that super can distribute more to you.”
If you take 300k from home equity and contribute that to super, aren’t you now paying a high rate of interest on the 300k borrowed from equity? And won’t that rate exceed the return ln that money within the superfund?
Depends how you set it up and when. Last two months have seen returns of 11% against a mortgage ‘cost’ of 3% x 2/12 months.
Agree Arthur, mortgage brokers and real estate agents should not be advising in this space. The overregulation of advisers however means it is hard for them to provide advice, leaving it to those less regulated / not across all of a clients affairs (MBs & FB’s) which is terrible for the client.