Retiring With a Mortgage: Harry Chemay on Super, Debt and the Family Home

In this episode, we interrogate a quietly explosive trend. More Australians are hitting retirement, still carrying a home loan, and it's reshaping how households use super, access the age pension and think about the family home. We're going to unpack what the latest data shows.

For example, the share of 55 to 64 year old homeowners with mortgages has climbed sharply.

while more than a quarter of lump sum super withdrawals go to housing related uses so why the owner outright by 65 assumption no longer holds and also what it means for cash flow risk and intergenerational plans welcome to the elephant in the room this is the podcast where we love to talk about the big things in property that never usually get talked about

I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Our guest today is Harry Chimay, a veteran retirement and wealth specialist with nearly three decades across planning, asset consulting and super product design and co-author of The Growing Debt Burden of Retiring Australians, scintillating topic.

Harry's going to help us separate signal from noise on later life housing debt, the real trade-offs between extinguishing loans versus preserving super and the practical, sometimes uncomfortable ways households can use their balance sheet to smooth consumption without resorting to magical thinking. So welcome, Harry. It's really great to meet you.

And I think this is a very, very interesting topic. We're going to get some meat out of this.

Thank you, Veronica. Great to be here. Thanks to you and Chris for the invite.

We met a long time ago, but when you were building sort of one of the first robo advice platforms, something called Clover, and you can sort of explain where that was in the journey. But how has that got you to where you are now and dealing with this topic?

It's interesting to sort of see how you sort of landed here.

Yeah, great question, Chris. Yeah, so we've probably known each other for like over 10 years, right? Because Clover was sort of like, we were building that in sort of 15, 16, and then we might've like launched publicly in 17.

But yeah, so Clover was effectively, yes, a robo-advisor as they now call it, digital advice, but it was very much really built for millennials because even back then,

we realized that one of the biggest use cases for advice was younger Australians locked out of the advice market, wanting to know how to get on the journey, particularly to build a deposit for a first home, right?

And they were dealing with really low, high interest savings rates, which weren't really high at all. And so this was an alternative and the reason Why we got into it was we realized that Australians were having to save longer and longer.

Four years was expanding to six, was expanding to eight, was expanding to 10. And we were like, all right, at that kind of timeframe, maybe you shouldn't just stick your money in a high interest savings account and hope for the best.

So long story short, after we sold Solva, I got back into, well, my first love, which is advice. I started life as a financial planner. And now I help super funds and other sort of institutions think about retirement, right? All the aspects of retirement.

And one of those that is coming into frame slowly but surely is housing and the associated housing debt approaching retirement.

So what has changed? What are you noticing?

A huge amount. So let's step right back, right? So when I started as a planner, like late 90s, the concept of having a home loan approaching retirement was just non-existent. I just never saw it. It never came up in conversations because the assumption was that you would comfortably

pay off your home by the age of 60, if not 65. And back then, like the age pension, you could get it at between like 60 and 62, depending on gender and so forth. And so most Aussies were homeowners and had comfortably made that last payment to the bank before retiring.

So that was what, not even like 30 odd years ago. Now the new data says that for the pre-retiree cohort, which I generally see is like 55 to 64. That's when you're really starting to sharpen up and think about retirement.

If you go back to 1990, I think the stats are like about somewhere around 17 to 20% of them still had a mortgage at retirement, so the minority. Later stats, we've seen it's more than one in two.

I think it's like 54% of Aussies approaching retirement who are homeowners still have some level of mortgage debt on the house as they approach retirement.

So I've got a bit of a theory here because I would imagine the simple thinking would be to say, or logical thinking would say, well, as property prices go up, people have to go into more debt in order to get into the property market or so they might get into the market later.

So therefore they're carrying more debt. Their 30 years makes them older when they're at the end of their mortgage period. And so therefore, they're more likely to be still have a mortgage at retirement age. That's the sort of simple way of looking at this.

But I suspect that also the ease of access to finance, the relative ability for people to refinance during the lifetime of having that property means that they're drilling down into the equity. They probably do other things. And so it's not as simple as they can't pay it off in time.

This access to borrowing has changed the way we look at our homes. Would that be something that we need to be talking about here?

That is very much part of the issue. And also the other part is flatlining incomes, right? So real income growth, which really, I mean, if you look at the numbers, it has stagnated since the GFC.

I mean, you can argue whether it's 2008, 2015, 16, where you look at the longer term trends, people's incomes, just haven't kept up, right? So property and property wealth does a lot of heavy lifting in Australia. So there's probably a couple of things. So I studied banking and finance at uni, right?

So I had to go back and learn all the back story. And definitely when you look at property, there's like two phases. One was probably in the Menzies era where it was a policy to get Australians owning their own houses. So historically, it wasn't the case, right?

We were probably more like a mix of owners and renters. But the Menzies government literally said, look, I think it's really good for stability of the population and also for the advancement that most Australians own their own homes.

So hence the Greenfield build out in Melbourne and Sydney and encouragement for people to get out there and get the quarter acre block, blah, blah, blah. So 50s, 60s. And then the second phase is exactly what you mentioned, Veronica, financialization, which is an 80s thing.

So financial deregulation, that really was a sort of a Paul Keating, Bob Hawke thing through the early 80s. New banks coming in from overseas, lots of restrictions on lending, which was eroded. So banks were literally like hamstrung in how much they could lend to individuals for houses.

And then that all sort of slowly went away in the 80s. So yes, those two things definitely encourage people to aspire to home ownership, which I think is a generally good thing. And we'll I'll come to why later on from a retirement perspective.

And then the access to credit that definitely took off from the mid 80s, 90s onwards. And so here we are today with in aggregate about $2.4 trillion of debt against residential housing in Australia.

I mean, obviously, people getting, you're saying the 50s, you're talking about the cohort here and, you know, they've got mortgages, right?

Whereas the big difference is 10, 20 years ago, very few of them had, you know, their home paid off and they were well ahead of their mortgage and they were looking to top up their super. And a lot of people didn't invest till their home was paid off, right?

That's the best ROI you can get on your savings. But you'd like to think that the advice industry is also potentially causes because they're like, oh,

you know what don't pay your home off as fast invest you know get an investment property put more money into your super i just don't think that's the case right the advisors have found it quite hard to pitch you know tell clients to pay their mortgages off slower right like because it's been so ingrained so it's not only upgraded they've renovated they've

you know, try to enjoy life while pre-retirement. So they've almost, she'll be right, mate, retirement will take care of itself. And they haven't sort of given it the focus and dedication they needed. Like maybe their previous generation, like the, you know, the 70s and 80 year olds were safe, safe, safe, safe, safe.

And they realized that when their parents didn't really enjoy life as they have a different view on it. It's like, do you think that plays into it?

That's a fair point. You know, there's an element of that. We see it, I mean, even in my parents' generation, right? So they're oldest of the baby boomers. And yeah, coming out of that experience, World War II, it's very much through, through, through, save, save, save, own your own home.

It's the best insurance policy you can have in old age. Pay it off before you finish work, kind of job done, right? Whereas, yes, I'm a Gen X. I suspect you guys are probably more on the millennial side of things, but we grew up- Thank you, but I'm fully Gen X.

Yeah, we grew up more like the 80s, 70s, 80s babies. And it was like times were good. And Gen X was the first to really embrace university education. So we were the first to also get hit with hex or whatever. With that additional education and skills, we wanted to go overseas.

So we were the first to go, that's it. We're off to... London for the two-year stint and we want to travel and blah, blah, blah. And we'll think about settling down the partner, the house, the kids later on. So there is a generational impact.

And then we just, yeah, we enjoy life and we like to do other things. So what has happened is if you look at the stats, right, Australians generally like to stay in a home for like 9 to 11 years, depending on whether it's an apartment or a house.

But yes, what Veronica mentioned before, the use of refinancing, potentially the support lifestyle, has definitely increased. So I know one of the Housing and Urban Research Institute did a study a while back, and they realized that actually quite a significant number of people in this middle-aged cohort were

increasing their mortgages without moving. And the only reason for that is, yeah, they're using it kind of like a virtual ATM potentially. And that's fine. It's just trade-offs though, right? Then it's just like, well, what happens at the back end? How do you make it work? What does that mean?

You just have to think a bit more about it rather than go, oh, she'll be right, mate.

So at the back end, what are people doing to make it work?

So you called it out before, Veronica. Part of it is we're seeing definitely, depending on where you sit in the demographics and wealth-wise, there are a rump of middle Australians who are homeowners because even whilst it's fallen, about...

78% to 80% of Australians currently do get to the point of retirement as homeowners. So that's good. Problem is that a lot of them now are having to look for sources of capital to extinguish existing housing debt, right? That seems to be a preference.

We haven't got to a level of sophistication where people say maybe there's other ways of holding this debt, carrying this debt, converting this debt. But if they just want to get rid of it, and a lot of Aussies do, what are their options? And a lot of them are looking to super...

That's clearly what we're seeing.

And the latest data we have is that when you look at the lump sum withdrawals, the actual movements out of super, I think it was like 27, 28% of that was literally used for housing related purposes, as you say, like paying off debt or doing a reno potentially, but very much housing related.

The way my brain is was like, you know, when I downsize, I want to take my 300 grand or whatever I could do and put that into super. You're saying that the reverse is happening.

People getting to retirement age and actually drawing down their super in order to either draw down or pay down their mortgage.

But is this also tied in, you said if they're not sophisticated, I'm not sure if that was your word, but not looking at sophisticated alternatives, the fact that they've got themselves into this situation, is that because they don't fully understand what's happening every time they refinance?

They don't actually get, like they use it like an ATM and they actually don't realize, you know, we've got this lack of financial literacy that we sort of know that we have this problem. Is it manifesting itself?

Possibly. I mean, that's certainly the case that a lack of financial literacy in just the way compounding works, right? So both on the wealth side, what your super balance is today versus what it is in 20 years.

And obviously, unfortunately, also on the credit side, which is how do these amortization schedules work out of each payment you make, how much is going to principal and how much is going to interest and how that changes over time.

So because people don't understand that, they may think that they can pay off debt sooner than they actually do. That's definitely, I think, something that's a bit of a problem. But then also culturally, yes, the preference has been to be mortgage-free at the point of retirement.

The question now is, is that a realistic goal for Gen X and definitely for millennials? Because what we know is even today with boomers, right? So it's boomers who are retiring today. We're up next, but at the minute, it's still boomers.

The median homeowning boomer approaching retirement now still has more than $200,000 of mortgage debt outstanding. So it's chunky, right? You've got to find a pretty big source of capital if you're just going to make $200,000 mortgage disappear.

So it's a combination of all those things, maybe lack of financial literacy, Maybe some not great advice along the way. And then just the sheer way the math works, I guess, through time.

I mean, in your report, I think it's an amazing report, which we'll put in the show notes. But you mentioned around divorce. That's another obviously a big thing that happened. We didn't stay with our partner forever now. always a better option.

The grass could be greener, but you know, that obviously has a huge impact on financial wealth, right? For people. So that's been a huge trend. I mean, their parents are probably living too long, right? That's what they're arguing. They thought mom and dad would die earlier, right?

Like, and I'd get a huge inheritance. Like, you know, you think about it, there's two people who I've definitely advised clients in this space in the 55 and some you raise the conversation around inheritance and they're like, oh, no, I can't possibly talk about this.

And it's so far down the line and, you know, and they genuinely don't. And then some are like, no, no, no, mum and dad are doing all right. I reckon we'll get about two mil or whatever it is.

And then they're going, well, why give up so much today that I know that mum and dad aren't going to spend it because they've, you know, they saved the pension and the house is worth five mil. So there is a bit of that going on, right?

Like, and there's just a lot of pressure on them in society to spend money. Like, it's just... private school fees gone through the roof.

Yeah, you're right. For certain households, especially, I guess, middle Australia and up, the spending pressures are enormous, right? So we know that the CPI number can only do so much. When you look at different people, their spending is different. And you've nailed it.

Private schooling, and I've actually just been through that myself, so yes, fully aware of that, it is a burden, right? So this is kind of a secondhand story, but I did hear that the CEO of a major bank,

I think it was last year or the year before, said that when he goes around and kind of gets the vibe of borrowers and so forth and some of the key clients, he says that now in certain cities, Sydney being the obvious one, wealthy grandparents are actually stepping in to help support their kids with private schooling fees.

No doubt about that.

actually mortgages as well because like they are you know i i can't give you the cash now but what i can do is pay your mortgage and they can see that the kids have you know because they've done so well out of property they don't want the kids to move they know that it's putting a lot of pressure in their family and you know to keep everything turning particularly the last four years we've seen it that that's been happening not just cash but regular sort of payments um

Do you think though, like, obviously as generations shift, what's comfortable for one generation might be comfortable for the next. Uncomfortable, no debt at retirement. Comfortable for the Gen X or maybe a little bit uncomfortable. Do you think that the Gen Y are like, well...

ultimately, I know I'm never going to live in that property in retirement. Why do I need to pay it off? Like, what's the point? Like, I'll just sell it and I'll find something else to live in. Do you think that's where we're heading to?

Is that people being more and more comfortable with debt as generations go on because it's just such a big part of life? Whereas I say the Gen X generation, as an example, Well, anti-debt because their parents drilled into them that debt was bad.

And that's a huge change to the way that, you know, property works, I guess.

I think you're right. I think millennials, there's a couple of parts to it, right? So they're even more educated than Gen X and, you know, and love to travel and so forth. But a lot of them, I think, are seeing property very differently.

Some of them are just like locked out of the market and go, look, we're forever renters or we're rent festers, right?

So literally, I have a niece who is that she doesn't own her own property, but she owns an investment property, you know, 20 something in good honor, and she's she's on the journey. But I think millennials are starting to see life a bit differently.

And so maybe it is a case of yes, we're stuck. If we do get on the ownership train, whether as an investor, or an owner, or both, then we kind of have to deal with debt for life. this is the change in the conversation, right?

So that's what we also looked at in the paper. It's like, all right, well, if that is the case, are there smarter ways of dealing with housing debt than taking your money out of super and giving it back to the bank? Because it almost swaps one problem for another.

So that's kind of what we were trying to unpack. There's no doubt that the more super you can hold on to for longer, the better, because once again, compounding, right?

There's this thing called the 10-30-60 rule, which is that actually, when they look at the long-term numbers, about 10% of the total benefit of super comes from the contributions you made. 30% comes from the earnings on those contributions.

before you retire, and about 60% comes from the earnings on the contributions after you retire. It's quite amazing the way the maths works, but you start with a sizable amount of super at the age of 60, and you can actually go the long distance if you manage it prudently.

But if you take 200 out of the 300 to pay off the bank, the maths just doesn't work anymore.

So, because there's lots of other knock-on effects, aren't there?

I mean, apart from the fact that you are robbing your ability for your super balanced compound into your retirement, you go and if you decide to go and sell that house and downsize, and you might actually pocket quite a bit of equity, and then, you know, you might be using the pension because you've eroded your super, then with all that extra equity, you might be in a situation where now you've got more cash and you're not going to get the pension again.

So it's a bit of a game, I guess, that people need to know the rules when they're playing this.

Agreed. And interesting you mentioned downsizing, right? Because we looked at that as a sort of a breakout section in our report. Why aren't Australians using downsizing more?

And I think, Veronica, you've hit the nail on the head for middle Australia because basically they don't want to release so much equity that it impacts on their age pension because it is so valuable.

So actually who downsizing is working for right at the minute, and I think it's a Melbourne-Sydney thing, is the upper end of the market. in the leafy eastern suburbs houses that they've owned for 30, 40 years. Too many bedrooms. Kids don't need it anymore. Downsize it.

Go to a brand new purpose-built multi-dwelling, a beautiful apartment or something in the same locale because a lot of people don't want to move too far. They want to be close to either their networks or their kids, to their grandparent duties. Those people are in good shape.

They can sell the five, six better. released three, four, five mil, buy something in the one and a half, two and a half mil range. And then the difference, because they were never going to get pension anyway, it's just all upside. That's what we see in the data. It's great strategy.

But for middle Australia, who still have debt outstanding as they're approaching retirement, it doesn't seem to be working out so well.

So what could they be doing instead of eroding their super?

So here's where we looked at this phenomenon, this thing called home equity release. And actually, it used to be a thing up until the GFC. Actually, you'd be surprised, but some of the major banks were involved. They all wrote home equity release loans, right?

I won't mention them, but some of the major names.

But you're talking about reverse mortgages.

Reverse mortgages primarily, exactly. There's a few variants and there's even a government version, believe it or not. But if you look at commercial reverse mortgages, that's exactly what it was, that there used to be a thriving market. Then the GFC hit and they all had to pull out.

But effectively, a reverse mortgage is just that you take a mortgage out over a property. It's just like having a normal mortgage, but you just don't pay any cash flows, like zero cash flow. And the principal compounds with whatever rate of interest. variable fix or whatever your commercial arrangement is.

And then generally speaking, when you get rid of the property, either you're selling it to go into residential aged care or your kids are dealing with your property, then you square up with the reverse mortgage provider then. And these days, there's a thing called the no negative equity guarantee.

So you can basically never go into negative equity if for some strange reason, interest rates and the property markets that move against you. So yeah, reverse mortgages and variants thereof.

Before we continue this conversation, I better make a declaration actually, because I have a consulting role with Longview and Longview have a product called HomeFlex, which is not a reverse mortgage, but it is a product if you want to call it that for, and a lot of people in this age bracket are looking to that as an alternative.

So I would just put my hand up to say, and I advise them in terms of the caliber of the properties that they might be bringing into the fund and might be sharing the equity of. So that's my role. I'm not a salesperson for fund.

Thank you. And likewise, too, I should make note that the study we did last year was supported by a home equity release provider, HomeSafe Solutions. So, yeah, there are a few. And thankfully, they're coming back, right?

Because as I said, after the GFC, a lot of institutions just had to pull out of the market because other things were on fire and they had to go back to core business. But now they're going, hang on a sec, this is an issue.

And so there are these innovative companies that are starting to realize that there are older Australians who need help and they're developing solutions to help, which is great.

So there is a cost to this money, right? So you can't just tap into the equity in your home and then go, oh, that's cool. I'll just pay it back when I'm ready to move out or sell it or whatever. You're going to have to pay it and some.

One of the things about reverse mortgages, because you, I love this, you know, you've got this concept of no negative equity, basically, which sort of says that there's a risk. Previously, there's obviously a risk you could actually owe the bank more money than the property's worth when you go to sell, right? That's

an enormous risk. And I know a lot of people, if you don't like debt, you definitely will feel uncomfortable having that liability or that compounds, right? Because that's tied to interest rate, correct?

There's an interest rate risk. Exactly right. It's because you're not paying down the debt. as you would in the traditional amortized or principal and interest loan. It compounds, right? It accrues.

But the issue is over the time that you're going to use that debt facility, might the value of your home increase at a faster rate than the value of the debt? That's the bet. And no one can know because you don't know what...

your house is going to do in your suburb relative to what Michelle Bullock is going to say on any one RBA meeting day. So yeah, that's the thing, right?

But overall, if you look historically, well, at least the last 26, 27 years, since 99, 2000, yeah, the housing market has had a pretty good run. I'm on a personal mission to help more people make better property decisions.

You know, most people don't realise that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need.

And what I do is help people with tricky real estate problems, which often masquerade as simple questions like, should I sell my investment property because the interest repayments are hurting? Or should I buy before I sell? Or the other way around.

You can connect with me and access all of the tools that I've created to help you make better property decisions at veronicamorgan.com.au. And there you will find resources for first home buyers, details about my buyer's agent mentoring program.

You can connect with my Sydney-based property management and buyer's agency teams, Australia-wide vendor advocacy, or ask me for introduction to the small group of buyer's agents that I would personally recommend across the country. That's veronicamorgan.com.au.

If you're considering a property move such as buying your first home, upgrading, renovating or investing, the team here at Alcove would love to help you think through your decision and get the finance right. Please go to alcove.com.au to reach out.

Let's talk about sort of, you know, reverse mortgages slash equity release, those sorts of things, you know, in a general sense. Why, if that's going to be expensive, and you don't really know what the cost of it's going to be until you sell the property, right?

So how could somebody, I guess, accurately or with any sense of confidence, weigh up the difference between drawing down their super where they sort of get this sense of, at least I won't have a debt versus I'm actually going to have a different debt and it's going up over time.

The longer I remain healthy, I've got this sort of, I've gone and done the right thing. I paid my house off, right? And now, and all of a sudden then I'm back not having paid my house off. Like how do people square that circle?

Yeah, and that's a really, really difficult equation to do, right? The maths on that would be difficult even for actuaries because you're making massive assumptions about the rate of home growth, your particular house, your city, your state, whatever,

relative to how your super fund might perform over that same period and then the earnings. So what we did was we took a far simpler approach, which is just to say right here, right now, today, what's the cashflow benefit, right?

So at the back of the study, we did a super simple case study where we looked at this hypothetical couple John and Joan Citizen. And we just said, they're approaching retirement, they're still working. So they're a Sydney couple. So they earn say 150, give or take.

So he's working full-time, she's working part-time as they wind down towards retirement. And they have the typical mortgage outstanding 230 there or thereabouts. And we ran some numbers. And basically what we realized was that

Based on a home loan taken, let's say 10 years ago, their total sort of household discretionary income, they would have gotten like maybe six grand a month, give or take, right? Because that was their income.

But their home loan is probably somewhere in the twos, $2,300 a month, $2,500 a month, because don't forget, they took it out a while back and the house was worth less. So they have like $3,000 each month to spend on other things besides the mortgage, right?

So then we just ran two different scenarios. One, which is take out the money from super and pay it off and therefore have no debt. And then off you go. And that basically improved their situation by about 40 odd percent because they didn't have that 2000 something a month that became zero.

So obviously every dollar that they could get in retirement from the age pension and the balance of their super, they could keep and spend. It was awesome.

And then we looked at a different scenario, which is, well, hang on to your super, use a facility such as the ones we've been talking about and use that to pay off the mortgage, right? And then that's super maintained. That's zero cash flow out the door on a monthly basis to the lender.

And that actually pumped up the take-home cash flow, what they could spend, by almost 70%. So they went 40% improvement by taking the super.

Sending it off and then, but 70% improvement by keeping their super and just flipping the, so it's basically just don't forget, it's like a debt re-engineering, changing one form of debt for another. But what they felt on a day-to-day basis was many, many more dollars in their pocket.

So I think that's one way of thinking about it. First level, cash flow. And then the second level, which is probably what your kids will be more interested in, is what's going to be left to them at the end of the day.

Immediately, I'm thinking to myself, if somebody has got themselves into a situation where they're into retirement with debt on their home because they've overspent, they've lived beyond their means all the time leading up to that point, if that's a reason that they've got themselves in that situation, and then they're going to go and do that rather than

tap into their super to pay down their mortgage or continue to pay their mortgage out of whatever their earnings are at the time, then they're just going to spend that extra 70%. You know what I mean? They're not actually going to be better off. They're just going to blow it.

We had Brian Hartz on this pod back in 2021. And Brian Hartzer basically got rid of all the reverse mortgages. He set up a company called 2B, which is now InViva. And he was calling about this all the way back then.

He's like, look, you know, this is a product that we see huge growth in. The banks have gone through all the responsible lending. It went deregulation and it went re-regulation with Royal Commission, blah, blah, blah. Banks are now got issues with credit growth, right?

So they can't keep growing there because it's just house prices and that's a big part of our economy, right? So they're going to have to look at innovation. And I think that we're going to go full circle.

I thought that, you know, I reckon that banks will, A, it's a lot of misunderstandings around lending to 55, 60, 65, 70 year olds. Like there's a lot of people, oh, you can't borrow and you can't do this. And like, it's not true. You can borrow on, you know, being retired.

You can borrow on your super income. There's so many, you can get 30 year loans at 65. Like there's a lot of misunderstanding that banks wouldn't lend.

And so I personally think that the banks are going to go full circle on this and lending to older Australians because there's so much debt available here and interest only terms are going to start coming back and potentially the banks are going to start moving into these reverse mortgages at decent rates because the risk to the bank's very minimal.

You know, if I could offer you a, let's say the loan house is worth $3 million and there's a $500,000 debt on it, why do I worry about them having to pay that off? I know if they ever got themselves into a position, they could, you know, sell down.

And I think you'll find that these reverse. And even the government have started offering a home equity release scheme, which you can get access to at really sharp rates, like 3.95% cheaper than mortgages. And that, I think, is another sign. So I think...

You know, people, older people, I know you're saying there's those downsizers that want to downsize, but if they miss that window of I'm comfortable to do it because I feel healthy and I feel like I can deal with change and I don't mind meeting new people and getting new neighbors.

If they get past that window and their desire to downsize like nosedives and they just want to stay in their home all the way through till death. And then we're living longer and longer, right? So even if one party dies, the surviving spouse could live well into their 90s.

And so I guess my takeaway is that this debt is just going to be a part of what retirement is.

And I think there's going to be more and more solutions that come that force people not to have to downsize, but they also don't have to take on product for the very high interest rates. I feel like the competition in this market will ramp up because the exit strategy is out.

Can you sell my home? Or I've got a bunch of money in super that I could always sell. And so the bank's like, well, yeah, I'll lend you the money.

Is that sort of your take on it too? It's very likely that the big institutions will look at the space again and go, you know what? The numbers are mind boggling because when you look at the wealth in Australia, at the household level, it is 100% dominated by bricks and mortar.

And when I say bricks, I mean, some of the numbers are actually quite comical when you look at it in abstract, because, for example, I'll give you these stats, which we had in our report. In the year 2000, the total wealth of Australian households was 2.5 trillion, of which housing was 1.6 trillion.

The most recent numbers, the total net wealth effectively of households in Australia is $17.3 trillion, so $17 trillion, of which housing now has just crossed over $12 trillion, right? $12 trillion, and you would know the median. Sydney is what, $1.4 trillion?

Brisbane, Melbourne are all in the nines basically now. And that's dwellings, right? So that's the combo of freestanding. And so, yes, you're right. Would a bank stress about lending 400,000, 500,000 to an older couple?

when they know that they're good for assets of, you know, two, three million. So you're right.

And I think especially Gen X and millennials to come, maybe we need to reduce the constraint of what our parents thought us, the baby boomers and the pre-war babies, which is never, ever approach retirement with any housing debt, right?

Because the fact of the matter is, houses are expensive now in Australia and incomes haven't kept up. So as Alan Kohler said, His parents, about four times income, house price to income, about four times. When he bought it, his house here in Melbourne is about the same.

Now a millennial in Sydney is looking at about 10 times, I think. And Melbourne is maybe eight or nine times income. So with that, it's really, really hard to pay off over 30, 40 years, especially if... You change houses on a regular basis every 10 years.

If you unfortunately experience a relationship breakdown, then both of you have to go swap yourselves out again. Or if you do a reno or any of those three.

You know, I know that $12 trillion of housing market. Of that $12 trillion, I don't have the stats, a vast majority is held by people over the age of 65, right?

Yep, I think it's about three of the 12, around about there.

Probably, but I don't know, that feels low to me. But I think that number is huge. And there's always this belief that they're all going to downsize and they're all just going to flood the market with all these properties.

And even these people who are in the 55 now and they're getting to retirement, by the time in 10 years' time they get to retirement and they've still got a $400,000, $500,000 mortgage, they might be able to get a 15-year interest-only loan at bank rates.

Because like the crackdown in sort of the Royal Commission and coming out of that investment boom is sort of slowly getting unwind, I feel. And I think if it's not the banks, it'll be the non-banks and the non-banks will get good market share.

And then the banks will be like, oh, actually, we'll just start offering that in-house. And then basically everyone's holding debt, right? So the young person's holding debt and you don't get forced just to sell because you can't afford to hold debt.

I think there's a preference for most Australians to age in place anyway. Once again, we saw that in our study, like, you know, I can't remember, the Productivity Commission or one of them did a big study into reverse mortgages and older Australians and what they were doing.

It was pretty clear even back then, like 10 years ago, that Australians preferred to age in place. because they're comfortable with their environment, they have support networks, they're built up in and around place.

Now, with packages available, home care packages and so forth, it is possible, depending on the house and a bit of retrofitting here and there. So yes, definitely. And then you've got this massive asset. The problem with that is it doesn't generate you cash, right?

So you've got this beautiful house, which is awesome in retirement, and it's one and a half, two million, whatever that number is, but it's not giving you any cash. And then the problem is if you still have a cash outflow, how do you manage that?

So here's where I think mortgage brokers and other mortgage advisors also have a role to play. to educate their client base, right? And whether it's their clients or their client parents or working together as a team, like, well, what's the situation here? What do you do? What are your options?

You know, okay, so how does this debt get re-engineered to help out with net cash flow on a monthly basis? All of those conversations, I think, will become more relevant and there will definitely be more entrance to the market because that's just the way Skrillex demographics are moving.

It's not incentivizing for the kids to get their parents out, right? There's multiple children. Often, if mom or dad does move out, then yes, some cash is released, but maybe they're not going to put it into a good asset.

Maybe they're not going to get as much as they would get if they sell the full property. So there's an incentive just to help their parents age in place rather than encouraging them to downsize, right? And because they go, they're going to have a better inheritance one day as well.

Like on top of, I think that's best in their best personal interest as well.

Yeah. I mean, if you work, you're right. You know, you talked about intergenerational like arrangements and whatever, but if you think about it as a family unit intergenerationally, Yeah, do the numbers, but you may be right.

If the kids work together with mom and dad to keep them in their own house and then manage any debt and so forth, it's kind of like you play the long game and maybe it helps you out and then it helps your kids out down the line.

I think basically the bottom line is we all realize that it's better to own a property in Australia than not own a property. So as I said, we work in the retirement space. We know from the numbers in terms of income poverty in retirement, fully home-owning Australians, it's like 11%.

It's hardly a thing. You put a mortgage onto that, so incumbent home-owning Australians, it doubles into the 20s.

And the people who are in real strife, non-homeowning retirees, and of all of those, women are by far the most impacted because they have the least resources, the least super, because of the super gender gap. And the number is an astonishing 78%.

of Australian single female retirees who rent in income poverty, according to the Grattan Institute. They did an awesome study last year.

So yeah, if you own a home, then in Australia, you then kind of becomes like a team sport, I think these days, working the numbers with your kids, working the numbers with your parents, knowing the options for debt management and thinking about it in that lens and working with a good mortgage broker who understands the ins and outs.

I think that's just going to become more common.

We've seen it in New South Wales. In fact, we've had guests on the podcast talking about the changes to zoning across Sydney, for example. We know that in Melbourne, there's very similar things happening. And across the country, we're going to see more and more of this, particularly in urban areas.

You're going to see more and more supply of medium and high-density living. And I think it'll be interesting to see how that changes this conversation.

Because apart from the fact, you know, the cynical adult children sort of thinking, well, I want to keep mum and dad in the house, because that's assuming the house is a great asset that is really valuable. You know, they're just living in normal suburbia. They're not having those conversations.

The property is not actually worth that much money to give them all those lovely options, right? So I would hazard middle Australians not necessarily having those conversations.

But what they are having conversations around, you know, I don't want to move out of this house because that means I'll have to move a long way away to be able to downsize into, you know, an apartment or a townhouse or a villa or something. And I'm losing all my connections.

I'm losing all my friends. I'm losing the family. I'm losing my doctor. I'm losing the chemist I go to. I'm losing all of these things that are familiar to me. And with this sort of changing of the density changes that are happening in a lot of our suburbs,

These options will come up for people to downsize. Like you talked about the eastern suburbs type person who sells the big expensive home because they're self-funded and then now they're taking advantage of these developments to buy a really beautiful apartment in the same suburb or the next suburb.

That sort of thing is going to start rolling out across the board. I would think that that's going to have an impact on the willingness of people to stay in place or whether or not they're going to actually downsize.

So that'll be quite interesting to see what impact that has on this emerging market of funding people into retirement.

Good point. And it's city by city, I think, right?

I mean, I was just in Sydney recently, just last weekend, and definitely Sydney is ahead of all other capital cities in urban infill and building some quality apartments and apartment blocks and people moving, being more comfortable living in a multi-dwelling environment.

Melbourne is behind Sydney, but on the way. And I grew up in Adelaide and everyone there lives in a detached house. The concept of an apartment is like what? And you see that in the numbers. That's why actually, weirdly, Adelaide looks like it's overtaken Melbourne for median dwelling price.

But that's just because there are so few multi-dwellings. in Adelaide relative to Melbourne, right? So that's like a bit of a fudge in the numbers.

But yes, I think more urban infill, more quality and more options in that, you know, whatever, three to 15, 20-story apartment buildings and whatever would definitely help.

Then people would go, all right, I may now be prepared to step away from my detached home. and live in something that keeps me connected, but is sufficient quality and amenity that I don't mind then making that decision.

So I think we'll see how it plays out in Sydney, because I suspect older people in Sydney will potentially have more choice before similar people in Melbourne, Brizzy, Adelaide, and the other capital cities.

And they're not going to absolutely just... I think there's this sort of growth, which we haven't yet, I think, in detail, but a whole new style of development, right? Like it's not a retiree home that's sort of boring.

It's sort of retiree living with, you know, that's actually much more targeted at the sort of the pre-retiree to, you know, retiree. You know, it's a whole new type of property that's probably going to come as well, right? It's not... just come here when it's your last option.

It's come here because you choose. This is a better way of living out my next 10, 20 years. It's with a lot of people that are like-minded, that are still fit and healthy, and it's in premium suburbs. So it's not aged care.

And I think that hasn't really been a market because those sort of people want it just to stay in their home. And there's a lot of people still wanting their parents and staying at home because that is the place where people can all come to, right? Like the kids don't have... a house.

They've got a townhouse and the grandkids have got apartments. And so the family home is often the meeting point as well. And if that goes, like it goes for the whole family.

And that's another thing that I think, you know, keeps the home off the market and stops the person who probably should downsize to downsize.

This is true, right? It's all of those things. It's like memories and it's like convenience and it's where everyone gathers at Christmas. You know, it's like, yeah, we're doing the road trip back to visit the folks in whatever city, you know, you grew up in.

And yeah, you know, you've got your old bedroom. It's all of those things that that's true. But, you know, from the point of view of the parents or the retirees, they've got to make pragmatic choices because what we do know is like the cost of living in retirement, right? Insurances.

So rates, home and contents, and all the other insurances that go with being a homeowner, that's been going up far, far higher than inflation over the last few years. You just don't see it. And so they have to make pragmatic calls. And then heating and cooling, right?

Cry heating and cooling a big old 70s house with multiple bedrooms, with a good old-fashioned ducted heating unit. Like, good luck with that in Melbourne or...

adelaide sydney winter so yeah so it's all those things that that as i said this cash flow is becoming like really front and center so there's this asset which is awesome and if you can organize it yeah by all means stay in place age in place deal with any debt through some good advice or look at what's out there if you're in a suburb which gives you the ability to downsize stay in that suburb it's a nice new flash thing and

The kids can still have a room or whatever, whoever's visiting. Awesome. But yeah, every Australian will have to make their own choice. But I think the key thing is get some awareness and start thinking about it sooner rather than later, right? Better to think about it 55 than 65.

Better to think about it 65 than 70. And the last thing you want to do is be having what you hear as those terrible hospital car park conversations between siblings. as something has happened and then mom and dad is like, and then they can't stay there anymore and blah, blah, blah.

So it's kind of like thinking through all the different issues about aging and housing and housing debt in the 21st century.

Definitely is a changing landscape, there's no doubt about it.

We've had a couple of conversations recently around the legalities and some of the options in terms of multi-generational living, but also the planning around that and the simple fact that, you know, so many people leave it too late to give themselves more options, you know, in terms of deciding whether they're going to downsize or move or whatever, however they sort of plan their way through this.

It's the avoidance of planning often, rather than active planning. And sometimes even staying in the home is a way of avoiding making these decisions. So it's not something that, you know, sometimes moving is a really smart thing to do. And I look at my parents' situation, I look at a number of

uh situations of people that we've dealt with over the years we do quite a lot of vendor advisory for people that are moving into retirement living in its various guises and it is really interesting to see those who have less choice and more urgency versus those who are actually making much much more you know considered and active decisions and exciting decisions rather than those fearful decisions because this is really god's waiting room you know like getting in early is just so much more empowering and you've got so much more agency over your own life

I've got a bunch of friends, in fact, I've got two different bunch of friends and we talk about our own sort of, you know, what villages are we going to build for ourselves? You know, we're going to do it ourselves. I'm sure I'm not alone in that.

Are you part of one of those conversations too?

Yeah, Australians are thinking outside the box, right?

So I heard of this one case of a finance executive who I think is Melbourne based and then he decided to pull up stumps and decided to build a purpose-built dwelling, like I think it's southern Queensland or northern New South Wales, somewhere around there, you know, where the sun is always shining.

And he did that specifically to accommodate him and his aging sister. So I think they were both in their 60s. And it was designed specifically for their needs. And then they've organized their care, someone to come in once a week and clean and so forth. So Australians are thinking differently.

If you've got the wherewithal and the... and the finance to do that often, awesome. But the key thing is, I think, Veronica, as you mentioned, start thinking early, right?

Start making those plans, because it's far better to make those plans from a position of optionality and confidence than, as you said, stress and panic, because those decisions tend to be kind of like they don't work out as well when you're panicking and trying to get things sorted in very compressed timeframes.

Yeah, it's not easy to make good decisions under that amount of pressure. Harry, have you got an example of a property dumbo for us today, a story that we can all learn from? We love personal stories on this podcast as well, if you've got one.

I know a family, and I won't mention any names, but yeah, no, it's mine, which is literally this case of helping parents to age in place versus move, right? So we got to the point, me and my siblings, where we realized that my parents had to move,

And there was a conversation had with an uncle who was also aging and it was like, all right, well, do we find a piece of land? And it's like two townhouses and do whole architectural blah, blah, blah thing. And that was kind of all going really well until two things, one, COVID.

And then two, because of that, the other party, my relative not being able to sell his property and then it all went pear-shaped. And so we ended up doing kind of all the things we just talked about, which is a very scattergun approach to moving my parents. closer to my sibling.

So now they are in proximity to where they can get a lot of family assistance, but it was rushed and it was kind of like backwards and weirdly, it ended up being, and I kid you not, an accidental upsize because obviously we were looking for a big block of land

and a house that we could potentially knock down. So now it's all worked out really well, but it just goes to show that, you know, the best laid plans of mice and men in a once in a hundred year pandemic can definitely throw your plans about.

But you know, you live and you learn and you adapt, but that was definitely an interesting couple of years through COVID.

Harry, it's been a good chat. I do think this is one that I've sort of been thinking about a lot over the last few years because I can see it. And I think we've been doing partnerships with advice firms, like financial advice firms.

And, you know, it was always like, oh, yeah, my clients don't need debt advice because a typical advice client is 55 to 60, the one we're talking about. But it's that proactive sort of debt planning approach. together with building a super portfolio, because this thing's not going to be paid off.

You need to be coming out with a strategy and paying your money out of the super fund to pay it off isn't going to be in anyone's interest, including yours, advisor, because you're going to have less in their fund, right?

Yeah, I think you're right, Chris. And this is the thing, just to finish up. I think there's this real demarcation kind of issue between super funds, financial advisors and debt professionals who work in the credit space. It actually ends up being a worse outcome for the actual individual, the member.

We need to somehow work together to break down those barriers so that the advisor understands what the super trustee is trying to do. The super trustee understands what the advisor is trying to do.

And both of them understand what the mortgage broker can bring to the equation for the betterment of their mutual client. That's something we're really hot on. And when I speak to super funds, they're really struggling with that.

And they need to get on board because otherwise, I can guarantee you a lot of super money, but we will be walking out the door to banks when if everyone works together, they can just kind of think about it a bit more intelligently and everyone, literally all four parties will be better off.

I would add in there that you really need to be, have good property strategy advice as well, because the reality is that, you know, holistic advice is always the best advice. You know, there's knock on effects for all these decisions.

Certainly when I'm doing strategy sessions with people, we are talking about the other advisors that they need at different times and don't make that decision without consulting with that advisor. But, you know, the problem is a lot of people do everything they can to hold on to a crap asset.

You know, so sometimes you do have to be thinking, is it worth holding on to? You know, like, you know, I think that's going to be growing in value over time and it's therefore it's worth holding on to. Or should I get out of it now and actually look at other options?

And so without, mind you, there's not many people in the country, I can honestly tell you, that ask questions.

able to advise on asset you know caliber it's a unique set of skills and and there's no rural university for it sadly because it takes critical thinking and a lot of experience to have really been looking at what does well over time what doesn't and why right so there's

data, but there's also just lots and lots of anecdotal evidence. It's what brought Chris really into the property space. He started seeing that. I mean, Chris, you tell that story many times about what you started seeing with clients. Why is it some people do really well in property and other people don't?

And it comes down to the asset selection as well as, I guess, what they do with it after they own it.

But a lot of the people that are trying desperately to hold onto properties, and I feel a bit sad for them because I think to myself, not sure if it was me, I don't think I want to keep that one.

Yeah, look, it's the biggest decision, right? Because it dominates the household balance sheet and like by a long way, it's three to one. For every dollar in super, most Aussies have $3 in bricks and mortar.

So that decision pretty much will determine, and I kid you not, will determine the sort of retirement you have. It's that critical.

Yeah. Thanks so much, Harry. I really appreciate the chat.

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