Reverse mortgages sustain rapid growth

Kieren Dell

The latest research conducted into the reverse mortgage market, commissioned by the Senior Australian Equity Release Association of Lenders (Sequal) and conducted by Trowbridge Deloitte, has shown the use of these types of products has continued to grow in a significant manner over the past 12 months.

According to the Sequal/Trowbridge Deloitte Reverse Mortgage Study, consumers had taken out in excess of 27,500 reverse mortgages at December 31, 2006, representing an increase of 80 per cent in the past year.

The total book size of the volume of loans came in at just over $1.5 billion.

While the rise in the use of equity release products remains impressive, Sequal executive director Kieren Dell said he had expected even more rapid growth from the market.

“I actually thought it might have been a little bit faster. I mean, 80 per cent growth is significant, but I thought it might have been above 100 per cent, and I think that it’s a function of the noise out in the market … and that’s why I’m saying we will get that 100 per cent growth rate in the not too distant future,” he explained.

The study revealed that the average loan size now stands at $54,200, which was a slight jump from the last time these statistics were compiled in June of 2006.

In terms of access to reverse mortgages, broker channels strengthened their significance in 2006, with 47 per cent of new loans being taken out during the year. In 2005, this proportion stood at 38 per cent and 17 per cent in 2004.

These channels were dominated by mortgage brokers as opposed to financial planners, but Trowbridge Deloitte partner James Hickey said this result did not belittle the importance of financial advisers in the process, as a good part of the business conducted by mortgage brokers originated from an adviser referral.

In regard to demographics, the average age of people with outstanding loans remained largely the same at 74, but the average age of new borrowers is 72. However, growth in the under 70s age bracket was very strong.

“In the settlements [new loans] profile, those under the age of 70 were the fastest growing segment … The under 65s were almost 20 per cent of new loans in 2006. They were probably only around 14 to 15 per cent in the 2005 period,” Hickey explained.

The research also revealed differing loan preferences between the age groups, with the under 65s favouring lump sum arrangements, as opposed to 70 to 80 year olds who gravitated toward an income stream set up.