Why can’t I borrow against my land lease or lifestyle village property?

If you’re living in a land lease or lifestyle village community and are considering a reverse mortgage to access the equity in your home, you may be surprised to learn that reverse mortgage lenders generally won’t approve these types of properties for a loan. So, why exactly can’t you borrow against your land lease or lifestyle village property?

1. Ownership Structure

In traditional property ownership, such as a freehold or strata title, the homeowner owns both the land (Real Property) and the dwelling. This provides lenders with a clear asset to use as collateral. However, in a land lease community, while you own your home, the land is leased from the community operator. Essentially, you own the structure, but the land it sits on belongs to another party.

Because the lender does not have recourse to the land (Real Property) via a registered first mortgage, they have no ability to secure their loan by using the property as collateral. In the event that the loan needs to be recovered, the absence of land ownership means that the lender has limited avenues to recoup their funds ​(Lifestyle Communities)​ (NSW Fair Trading).

2. Lender Risk

For lenders, the security of the land is essential. In the case of a default or at the end of the loan (for instance, when a reverse mortgage comes due), the lender relies on the sale of both the land and the home to recover the loan amount. In land lease properties, because the homeowner does not own the land, lenders view this as a higher risk. The only asset is the dwelling, and its resale value may be lower or the sale of the dwelling more challenging without ownership of the underlying land​ (www.downsizing.com.au).

3. Lifestyle Village and Land Lease Models

Lifestyle villages operate similarly to land lease communities, where residents own their homes but lease the land. These communities often cater to retirees or people over the age of 55, providing an affordable housing solution with a range of community amenities. However, the same issue of land ownership applies. Because the lender cannot use the leased land as security, they are unwilling to offer reverse mortgages on these properties ​(Retirement Now).

Even in cases where you may have a form of “green title” ownership within some lifestyle villages, the underlying structure generally still includes leasing the land, making it ineligible for reverse mortgage lending ​(www.downsizing.com.au).

4. Legal and Financial Complexities

Retirement villages, another common community living option, face similar issues. Often, residents pay an upfront fee for a lifetime lease rather than owning the land (real property) outright. These leases do not offer the Real Property security that lenders need, and additional factors like Deferred Management Fees (DMFs) complicate the financial arrangements even further. As a result, lenders typically exclude retirement and lifestyle villages from reverse mortgage eligibility ​(NSW Fair Trading).

5. Home Equity Access Scheme

Unfortunately, properties in land lease communities and retirement villages are not eligible for the Australian Government’s Home Equity Access Scheme (HEAS), previously known as the Pension Loans Scheme (PLS). The key reason for this ineligibility is that these properties do not meet the scheme’s requirement for offering Real Property (real estate) ownership as security for the loan.

For the HEAS, full ownership of both the land and the property is required, as the government needs to place a charge on the Real Property title to secure the loan. If your name is not on the land title, as is the case with most land lease and retirement village arrangements, the property cannot be used as security​ (Services Australia)​.

This means that residents of these types of communities will need to explore other options to access additional income and / or financial support. For example, some may still qualify for other government support depending on your individual circumstances, but reverse mortgage or HEAS options are not available for these properties.

If you’re unsure about your specific situation, it’s best to contact Services Australia for further clarification.

Conclusion

If you live in a land lease or lifestyle village, the reason you cannot borrow against your property is tied to the unique ownership and leasing structures of these communities. Without ownership of the land, lenders cannot secure the loan effectively, making reverse mortgages and the HEAS unavailable for these types of properties.

For more information on property eligibility and reverse mortgages, feel free to contact our team at Your Home Equity.