Reverse Mortgage Study

Media Release, Embargoed 6.00am, 26 April, 2007

First Comprehensive New Zealand reverse mortgage study reveals total loans of more than $200m at 31 December 2006

Actuarial practice Trowbridge Deloitte today released the first comprehensive study of the New Zealand reverse mortgage sector.

The Trowbridge Deloitte New Zealand Reverse Mortgage study found that the reverse mortgage market at 31 December 2006 consisted of more than 4,500 loans with a total book of almost $227 million.

James Hickey, Trowbridge Deloitte partner who led the study said, “The market has more than doubled in the past 12 months with the sector’s outstanding loan book of $227 million at 31 December 2006 increasing from $89 million at the end of 2005.”

Mr Hickey also said that “settlements of new reverse mortgage loans were $96 million in 2006. New inflows are growing at a rate of more than 55% per annum”.

Rob Dowler, Executive Director of SHERPA, a not-for-profit member organisation supported by New Zealand’s leading providers and distributors of home equity release plans said, “This is significant growth with figures at 156% p.a. in the past 12 months based on $ outstanding book.”

“I expect the level of outstanding loans to be close to $500 million by the end of 2007. Reverse mortgages are steadily growing as a retirement financial planning tool as increasing numbers of New Zealand retirees consider equity release products when planning for their retirement.”

A summary of the key findings are:
• market more than doubled in size over 2006
• borrowers draw around 60% of allowable facility at the time of settlement

• nearly all loans are variable interest lump sums, with negligible income stream
• broker channel sold 68% of all loans
• North Island is largest penetration (71%), with Auckland the major city (22%)
• Up to 55% outside of major metropolitan areas
• couples make up more than half of all borrowers
• 70-79s largest age bracket, however 60-70 year olds are a growth segment

Trowbridge Deloitte thanks all industry participants who responded to the survey. Trowbridge Deloitte acknowledges the support of SHERPA (the Safe Home Equity Release Plans Association) in helping facilitate the survey in New Zealand.

Commentary on findings

“An increasing number of New Zealand retirees are recognising the benefits of reverse mortgages, given that there is a considerable pool of housing wealth in New Zealand not actively being utilised as an ‘asset’ to support post retirement lifestyle planning” said Rob Dowler.

“The average age of all borrowers is 73, with an average loan size of $49,900,” he said.

James Hickey explained, “Draw downs were almost predominantly lump sums, with negligible take up so far of income stream reverse mortgages. Of such lump sum draw downs, the equity is primarily used for home improvements (32%), with 20% used for debt repayment.

Dowler noted that only about 60 percent of the total approved loans are accessed straight away. "This illustrates that New Zealand borrowers are remaining well within their approval limits, and drawing down as they need funds. Should they later require additional advances of cash, they will have such access available up to their approved limit” he said.

Hickey said, “The mortgage broking channel is the most popular with 68 percent of reverse mortgage lending having been facilitated by a mortgage broker. This early popularity of the broking channel shows that New Zealanders are using intermediaries to assist in the borrowing and advice process when it comes to reverse mortgages.”

Hickey believes that, “Brokers and financial planners are well placed to assist and advise borrowers on how reverse mortgages can be considered as part of holistic retirement planning for New Zealanders.”

Dowler said, “It is important to educate intermediaries on the unique characteristics of reverse mortgages, which is why SHERPA has pledged to work with the Government on any future regulation of the industry.”

Hickey points out that almost all reverse mortgage loans attract variable interest, with only 1% taken at fixed rates. He explains, “Fixed rate reverse mortgages only very recently appeared in the marketplace and it remains to be seen whether New Zealanders embrace fixed rate reverse mortgages in a similar way to which they embrace fixed rate “traditional”, or normal, mortgages.”

Dowler said, “As the reverse mortgage market grows, lenders are offering a larger range of products and retirees are shopping around for product features that best suit their lifestyle.

“The North Island leads with the highest number of reverse mortgagees (71 percent). The South Island has 29 percent. Interestingly 55% of loans are drawn down outside metropolitan areas especially in the North Island.

“It is important to recognise that these loans are not just for city dwellers. Loans to regionally-based retirees will continue to grow as aging regions and ‘sea-change’ retirees fund their retirement using the equity in their homes,” Dowler concludes.

Hickey highlighted that couples are the largest borrowing segment (53%) followed by single females (34%) and single males (13%). The average age of new borrowers is 72 years, although the under 70 age group is growing. Under 65s account for 16% of new loans in 2006 and 13% of outstanding, and 65-69s account for 23% of new loans in 2006 with 21% outstanding. The under 65s take out the smallest loans, averaging $37,500.

See our media releases and research at www.deloitte.com.au.

Industry members that participated in the survey are listed below:

Bluestone Equity Release NZ Ltd: http://www.bluestone.net.nz
Dorchester Life: http://www.dorchesterlife.co.nz
Lifestyle Security: http://www.avoninvestments.co.nz/index.cfm/lifestyle_securities
Savings and Loans: http://www.savingsandloans.co.nz
Sentinel Ltd: http://www.sentinelrs.co.nz

Information on SHERPA and SHERPA member industry participants available at www.sherpa.org.nz

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