Australia’s reverse mortgage market reaches $2.5 billion

Deloitte Actuaries and Consultants released its sixth comprehensive study of the Australian reverse mortgage sector today. The study was commissioned by the Senior Australians Equity Release Association of Lenders (SEQUAL), the peak industry body which governs reverse mortgage providers and provides consumer safeguards.

The Deloitte SEQUAL Reverse Mortgage Study found that the reverse mortgage market as at 31 December 2008 consisted of more than 37,500 reverse mortgage facilities with total outstanding funding of $2.5 billion. This represents almost 8% growth over the six months from 30 June 2008 and 23% growth over the 12 months from 31 December 2007.

James Hickey, Deloitte Actuaries and Consultants partner who led the study said that there were more than 2,600 new reverse mortgages written in the second half of 2008 which, when combined with the size of each loan growing from $63,000 to $66,000, confirmed continued growth in the sector.

Hickey noted that the settlement and growth figures were achieved in a difficult year for lenders with the backdrop of constrained financial markets. “The results reflect those challenges. Although 2,600 new loans were written in the second half of 2008, this volume of settlements was down some 25% on the prior six month period.

“Discharges, or the rate at which borrowers repaid their reverse mortgages, continued to remain at around 10% per annum. The majority of those discharges are due to owners voluntarily repaying or selling their property,” Hickey said.

A summary of key information is show below:

*12month figures (with the addition of new data from various lenders)

Kevin Conlon, Chief Executive of SEQUAL said, “The sustained market growth of 23% over the year, demonstrates the important role Equity Release continues to play in meeting the needs of Australian Seniors as they face the challenge of funding their retirement”.

Conlon explained that, “When used effectively, equity release can help a retiree to access the significant wealth they have accumulated through property ownership in order to more effectively live the life that they choose.”

Summary of Key Findings

• Market growth of outstanding balances was 23% in the past 12 months
• Payment type of funds drawn of the $141m worth of settlements, lump sums accounted for 97% and income stream for 3%. This continues the trend from the previous six months and may be due to the popularity of the ‘lump sum’ line of credit, as an alternative flexible option to the contractual income stream
• Interest rate type the proportion of fixed interest reverse mortgage loans is no longer on the increase.  Fixed rate loans represented 10% of all settlements in the second half of 2008, compared to 28% of settlements in first six months of 2008
• Channel for new loans the trend continues of the preference for intermediated sales over direct sales as the largest channel in Australia, with 52% of new loans taken through brokers and planners in H2 2008 against 43% direct. Of outstanding loans however the direct channel remains the most popular (54%)
• Couples are the most common borrowers (44% of new loans), with single women at 40% and single males 16%. The average size of the borrowing is largest for single women ($74,300) compared with $67,600 for couples and $64,100 for single men
• Age band of borrowers the average age of existing borrowers is 74, however the trend towards the 60-70 age group continues with under 70s taking 37% of new loans compared with 30% of outstanding loans
• Geographic split showed that Queensland continues to be the dominant state for new loan settlements with 23% of new loans.  NSW continues to account for 22% of new lending.  VIC, SA and WA each account for around 16% of all new lending
• Loan settlements in capital cities dominate, growing to 80% from 75% in 2008 H1
    - NSW around 68% in capital cities
    - Tas around 78% in capital cities
    - Vic, WA around 85% in capital cities
    - Stronger regional presence in Qld, SA and NT (50-60% capital city)
• Information on additional drawings and discharges:
    - Almost one in eight existing borrowers in the six months drew down additional funds from their facility. The average amount of additional drawdown was around $12,000
    - As for 2007, 10% of existing borrowers repaid their loans in full over the year (i.e. completely discharged the loan). Of this 10% pa full discharge rate, less than 1% pa was for mandatory reasons (e.g. death or moving into aged care facilities), with sale of property and voluntary repayment the primary reasons for discharge.

To read the full press release, download the attachment below.

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