Ageing population to revive reverse mortgage sector

The reverse mortgage sector has shrunk drastically over the past few years, with many players exiting the market due to funding issues — but some industry experts predict the demands of the ageing population and possible Government endorsement could revive the sector.

The $3 billion industry was supported by 15 lenders in the 2007-08 financial year, including the Commonwealth Bank, ANZ, Macquarie, Suncorp, St George and a few non-bank lenders.

Since then, almost two thirds have stopped offering equity release products, and the Senior Australians Equity Release Association of Lenders’ (SEQUAL’s) membership has been reduced to six active lenders.

The managing director of Seniors First, Darren Moffatt, said equity release products were very complex and expensive to bring to the market, which was why many lenders could not afford to stay.

“[Lenders] can’t bring the revenue to account for long periods of time, so it’s not until someone passes away or sells their property that they can get the revenue and the interest they’ve accumulated over that period of time,” Moffatt said.

Both Moffatt and SEQUAL chief executive Kevin Conlon (pictured) agree that the reverse mortgage market will rise again due to the demands of an ageing population, as well as the aged care funding issue the Federal Government is currently looking into.

“No one is denying the inevitability of the demographic shift, and the Government is starting to turn its mind to addressing the problems of growing pension claims and a shrinking labour market supporting that pension claim,” Conlon said.

The Productivity Commission released a draft report last month that recommended that a Government-backed (but not necessarily operated) Aged Care Equity Release scheme be established, “which would enable individuals to draw down on the equity in their home to contribute to the costs of their aged care and support”.

While acknowledging the complexity of equity release products and the consumer nervousness around them, the commission’s report stated that “a public scheme could play an important role in inspiring confidence in equity release products and stimulating market development, although it could also crowd out the further development of private schemes”.

Advisers could also play a critical role in the uptake of this sector, but the scope and price of advice given about reverse mortgages needed to be decided upon first, according to Conlon.

Conlon and Moffatt predict that it will be at least five years before equity release product providers start coming back to the market, when (and if) the Government starts acting on the recommendation of the Product Commission.