The cost-of-living plus housing interest rate hikes are hitting younger people hard. New homeowners with big mortgages and aspiring homeowners are no doubt looking at interest rate hikes with fear.

But the issues brought about by rising interest rates are not confined to the younger generation.

There are also concerns about the increasing number of indebted older Australians experiencing mortgage stress as more and more seniors enter later life saddled with debt.

In 2007-08, the Australian Bureau of Statistics reported that 8.1% of all households with a person aged 65 -74 were owners with a mortgage. The proportion has risen sharply since then. In 2019-20, the proportion of households with a person aged 65-74 with a mortgage was 13.4% - a 65% increase!

Each year, more and more people retire with a mortgage, and the growth in debt has dramatically outstripped real house price increases and income growth - highlighting the incidence of repayment risk and difficulties with paying the mortgage.

The latest rate hikes and cost of living pressures have breathed new life into a seminal 2019 study on seniors' mortgage debt.

According to the Australian Housing and Urban Research Institute (AHURI) report, “These trends have significant consequences for older Australians’ well-being and affect how older homeowners manage their wealth portfolios and labour market transitions."  

It is a warning that continues to be relevant for those mortgage holders who are now retiring or have retired.  

“Mortgage indebtedness later in life also presents significant financial and health ramifications for retirement income policy and housing assistance programs”, the report continues.  

“Home ownership has often been dubbed the fourth pillar of the retirement income system. However, this pillar may be crumbling due to rising mortgage indebtedness and threats to homeowner’s status as Australia’s majority tenure.” 

These trends significantly impact older Australians’ well-being and affect how older homeowners manage their wealth portfolios and labour market transitions. Mortgage indebtedness later in life also presents significant ramifications for retirement income policy and housing assistance programs.  

The AHURI report predicted that due to tenure and demographic change, the demand for Commonwealth Rent Assistance (CRA) could rise by 60 per cent, from 414,000 in 2016 to 664,000 in 2031.  

The unmet demand for public housing from private renters aged 55+ is expected to rise by 78 per cent—from 200,000 to 440,000 households—between 2016 and 2031.  

The AHURI report also raised concerns that older people are drawing on their superannuation to pay outstanding mortgages.  

While this strategy may be logical for a retiree as a retirement strategy, it will have implications for the retirement income system as more and more older people retiree with lower superannuation balances with which to augment or supplement the pension.  

The report also found that older mortgagors reported lower mental health and higher psychological distress than older outright owners.  

However, exposure to investment and repayment risk alone did not appear to have a strong bearing on older mortgagors’ wellbeing.  

It was when older mortgagors experienced difficulty meeting mortgage payments that well-being declined.

These key findings still need to be addressed by governments and policymakers: 

• From 1982–2013 the share of mortgagors increased in all age groups. The steepest increases are amongst middle-aged Australians approaching retirement. Between 1996 and 2013, the proportion of the 55–64 cohort paying off their mortgage climbed from less than 20 per cent to 45 per cent.  

• Between 1987 and 2015, the growth in mortgage debt outstripped house price and income growth among older mortgagors. In this period, mortgage debt increased by 600 per cent (from $27,000 to over $185,000). House prices tripled while income growth doubled.  

• When older mortgagors experience difficulty in meeting mortgage payments, their well-being declines. The effects are comparable to those resulting from long-term health conditions; hence the rising trend in mortgage indebtedness in Australia has negative impacts on the well-being of an increasing percentage of the population.  

• The policy implications are significant since repayment risk appears to prompt older mortgagors to draw down on their superannuation wealth to pay off mortgage debt rather than meet spending needs in retirement, leading to growing pressure on the age pension system. 

For further reading: Australian Housing and Urban Research Institute and Aged Care Guide.