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Australia’s reverse mortgage market reaches $2.7bn at 31 December 2009


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Deloitte Actuaries and Consultants released its eighth comprehensive study of the Australian reverse mortgage sector today. Commissioned by the Senior Australians Equity Release Association (SEQUAL), the study found that the reverse mortgage market in Australia as at 31 December 2009 consisted of more than 39,000 reverse mortgage facilities with total outstanding funding of $2.7 billion. This represents almost 4% growth over the six months from 30 June 2009 and 9% growth over the 12 months from 31 December 2008.

James Hickey, Deloitte Actuaries and Consultants partner who led the study said that there were more than 2,665 new reverse mortgages written in the second half of 2009. “This was up on the same period in 2008,” he said. “Also when you track the growth in the size of each loan from $51,148 in December 2005 when we initiated this study on behalf of SEQUAL, to the current $70,000 as at 31 Dec 2009, there appears to be a continued appetite for this equity release product.”

Hickey noted that the settlement figures for the second half of 2009 of $141m were level with the same period in 2008. “It is interesting to see that, following the dip in the settlement figures in the first half of 2009 to $122m, settlements have begun to move back up to be on par with the 2008 numbers. This gradual recovery in growth appears to reflect the cautious optimism of the economy in general,” he said.

A summary of key information is shown below:

  Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Outstanding market size $0.85b $1.51b $2.02b $2.48 $2.71b
Number of loans 16.584 27.898 33.741 37.530 38,788
Average loan size $51,148 $54,233 $60,000 $66,150 $69,896
Settlements $315m $520m $466m $321m $264m
Facility (settlements) $519m $714m $627m $426m $367m
Additional drawdowns n/a n/a $125m $116m $126m
Discharges n/a n/a $203m $253m $309m

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

Kevin Conlon, Chief Executive of SEQUAL, the peak industry body which governs equity release providers and provides consumer safeguards, pointed out, “attitudes towards retirement funding are changing as the largest generation within the Australian population, the so-called Baby Boomers, approach the end of their working lives. The home is increasingly being considered a part of the planning process with equity release been seen as a means to unlock the substantial wealth stored in property in order to live well.”

Summary of Key Findings

  • Market growth of outstanding balances was 9% in the past 12 months to December 2009
  • 2,665 new borrowers in H2 2009
  • Average settlement size $53,000
  • Variable rate loans most popular
  • Full discharge rate of 11.5% p.a. (mainly due to sale of property and voluntary repayment)
  • Additional drawdowns approximately 5% of outstanding loans
  • Lump sum most popular drawn down type
  • Brokers & planners now account for 50% of reverse mortgages
  • The broker channel has increased over the last 6 months, continuing a trend since H2 2006
  • Proportions of outstanding loans by State: NSW 33% of market, QLD 21% and VIC 17%
  • Payment type of funds drawn of the $141m worth of settlements, lump sums accounted for 95% and income stream for 5%. The proportions of lump sum and income stream settlements have been relatively stable since H2 2007. Income Stream relative low take up is also due to more flexible product options such as ‘line of credit’ allowing discretionary income draws rather than contractual.
  • Interest rate type the proportion of fixed interest reverse mortgage lending on settlements was 1% in H2 2009 based on $ amounts. This is a trend that has continued since 2008. Between 2006 - 2007, fixed interest lending increased but started to decline in 2008:
    – 4% in 2009
    – 20% in 2008
    – 34% in 2007
  • Channel for outstanding loans there is now a 50/50 split of outstanding reverse mortgages originated from the direct channel and third party intermediated channels
  • Couples remain the dominant borrowing segment closely followed by single women with the average loan size: single women $84,000; couples $76,000 and single males $69,000
  • Age band of borrowers the average age of new borrowers is 73 years with those under 70 representing nearly 40% of all new loans compared to 30% of outstanding loans
  • Age profile of borrowers broadly consistent throughout the study since 2006
    – Use of proceeds consistently in the top three uses of settlements: Home Improvement; Regular income; and Debt repayment
  • Information on additional drawings and discharges:
    – Almost one in nine existing borrowers in the six months drew down additional funds from their facility. The average amount of additional drawdown was around $14,600.
  • Full discharges show an 11.5% p.a. repayment rate for H2 2009. Of this rate:
    – Mandatory repayment (e.g. death, aged care entry) accounts for 1% p.a. discharge rate
    – Voluntary repayments account for 3% p.a.
    – Sale of property accounted for 3% p.a.
    – Refinance relatively low at 1% p.a.

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Contacts

Name:
Louise Denver
Company:
Deloitte
Job Title:
Director, Corporate Affairs & Communications
Phone:
Tel: + 61 2 9322 7615, +61 4 1488 9857
Email
ldenver@deloitte.com.au
Name:
James Hickey
Company:
Deloitte Australia
Job Title:
Partner, Financial Services
Phone:
Tel: +61 2 9322 5009
Email
jahickey@deloitte.com.au
Name:
Pauline Negline
Company:
SEQUAL
Job Title:
Media
Phone:
Tel: +61 2 9923 1871, Mobile: +61 (0) 407 700 653
Email
pauline@sequal.com.au
Name:
Kevin Conlon
Company:
SEQUAL
Job Title:
Chief Executive Officer
Phone:
Mobile: +61 4 1109 4495
Email
kevin@sequal.com.au

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