Reverse Mortgages in Australia and New Zealand 2007

SUMMARY

Overview

Introduction

Reverse mortgages are a way for cash-poor but asset-rich seniors to tap into property equity, and hold strong potential, given an aging population with insufficient retirement funds but holding significant equity. This report analyzes the rapidly growing markets in Australia and New Zealand, identifying factors determining growth, and forecasting future developments.

Scope

• Comprehensively covers the reverse mortgage market in Australia and New Zealand, and briefly discusses fledgling Asian markets.
• Sizes the reverse mortgage market in Australia and New Zealand and provides five-year forecasts under three scenarios.
• Provides competitor market shares for the major reverse mortgage lenders in Australia and New Zealand.
• Provides competitor profiles in Australia and New Zealand.

Report Highlights

Potentially there are almost two million households in Australia that could be eligible for a reverse mortgage. There are currently around 31,500 reverse mortgages outstanding, which equates to around 1.6% of the potential market. There is also significant room for growth in the average size of the loan.

The main problem for providers of reverse mortgages is the negative perception these products are subject to. These negative perceptions go further than just affecting potential customers. Lawyers, financial planners, consumer advocates and the media have all been initially suspicious toward reverse mortgages.

Both the Australian and New Zealand market is experiencing a stiff competitive climate, with shrinking margins on residential lending in general. Both countries have seen an influx of lenders, arguably more lenders than the current size of the market can sustain.

Reasons to Purchase

• Keeps you up to date with the dynamic reverse mortgage sector by providing you with in-depth analysis of the major issues.
• Plan your strategy with confidence using Datamonitor's forecasts of the reverse mortgage market up to 2011.
• In-depth analysis of lenders' products allowing you to reassess your product strategy.

TABLE OF CONTENTS

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • Reverse mortgages in context
    • Reverse mortgages allow asset-rich but cash-poor seniors to access the equity in their home
    • Borrowers use reverse mortgages in three different ways
    • Three factors will contribute to the long-term growth of reverse mortgages
    • In Australia, reverse mortgage advances amounted to A$624m in 2006
    • In New Zealand, reverse mortgage advances amounted to NZ$96m in 2006
    • Reverse mortgage market growth has slowed down in 2007
    • Reverse mortgages are still not mainstream products and are subject to negative preconceptions
    • Reverse mortgages have some unattractive aspects for mortgage lenders and brokers
  • The Australian reverse mortgage market has become more competitive
    • Non-bank lenders have driven recent growth in the market
    • CBA holds the greatest market share of reverse mortgage advances
  • The New Zealand market has been shaken up by new entrants
    • Competition is expected to increase
    • Sentinel still holds a dominant market share of New Zealand reverse mortgage advances
  • Future trends of reverse mortgages
    • Product evolution
    • Competitive trends
    • Reverse mortgage borrower trends
    • Australian reverse mortgage advances will grow to A$1.2 billion in 2011
    • New Zealand reverse mortgage advances will reach NZ$190m in 2011
• Table of Contents
• Table of figures
• Table of tables
• Reverse Mortgages in Context
  • Reverse mortgages allow asset-rich but cash-poor seniors to access the equity in their home
    • Reverse mortgages are loans secured with property with no repayments until the borrower moves or dies
    • The no negative equity guarantee is an important feature of most reverse mortgages
    • Borrowers use reverse mortgages in three different ways
      • According to a 2006 survey, the major uses of reverse mortgage funds in New Zealand were for living expenses and home maintenance
    • There are other financial products that can also be used to release equity
    • Reverse mortgages have been available in Australia for two decades
  • Several factors have contributed to the development of reverse mortgages
    • Aging populations have expanded the customer base for reverse mortgages
    • Insufficient retirement incomes are forcing retirees to find alternative ways to fund their retirement
    • Property price growth has led to an increasing proportion of wealth held as home equity
  • Reverse mortgages still only make up a tiny fraction of lending commitments
    • In Australia, reverse mortgage advances amounted to A$624m in 2006
      • Only around 1.6% of eligible senior households in Australia currently hold a reverse mortgage
    • In New Zealand, reverse mortgage advances amounted to NZ$96m in 2006
    • Reverse mortgages have been introduced in Singapore, South Korea and India
      • Reverse mortgages were launched recently in India but have not yet seen strong uptake
      • Reverse mortgages have been offered for 10 years in Singapore
      • Reverse mortgages were introduced in South Korea in 2004
  • The growth in the Australian reverse mortgage market has slowed down in 2007
    • Recent slowing property price growth and interest rate rises has made borrowing less attractive
    • Changes to the Australian superannuation system may have stalled growth in reverse mortgages
    • Reverse mortgages are still not mainstream products and are subject to negative preconceptions
    • Taking out a reverse mortgage may affect pension entitlements
    • Other alternatives rival reverse mortgages
    • Reverse mortgages have some unattractive aspects for mortgage lenders and brokers
• Competitive Dynamics of the Australian Reverse Mortgage Market
  • The Australian reverse mortgage market has become more competitive
    • The margins on reverse mortgages have shrunk
    • The Australian reverse mortgage market is oversaturated with lenders
    • Non-bank lenders drive the growth in the market
    • Once innovative features are now considered standard
      • Fixed rate for life loans are now commonly available
      • Flexible drawdown options are now offered by several lenders
      • Protected equity options are available from most lenders
      • Some lenders do not require the borrower to reside in the property
      • Reverse mortgages have been securitized twice in the Australian market
  • The largest reverse mortgage lender in Australia is still CBA
    • The five largest providers of reverse mortgages account for almost 80% of the market
    • Bluestone, ABN AMRO and Australian Seniors Finance achieved strong market share growth
  • Profiles of some key Australian reverse mortgage providers
    • ABN AMRO
    • ASF
    • Bluestone Equity Release
    • CBA
    • OFG
    • St.George
• Competitive Dynamics of the New Zealand Reverse Mortgage Market
  • The New Zealand market has been shaken up by new entrants
    • New lenders have entered the New Zealand market, while one lender has exited
    • The New Zealand market is not yet as competitive as the Australian one
    • Fixed rates have been launched in the New Zealand market
    • Regulation is expected in the New Zealand intermediary market
  • Sentinel is still the dominant reverse mortgage lender in New Zealand
    • Sentinel holds a 77% share of new reverse mortgage loans but has lost share over the years
  • Profiles of some key New Zealand reverse mortgage providers
    • Bluestone NZ
    • Dorchester
    • Savings & Loans
    • Sentinel
• Future Focus
  • The reverse mortgage product is expected to continue evolving
    • Fixed rates may become more common
    • Reverse mortgages may have insurance components added
    • Annuity type products may be introduced
    • Drawdown facilities will continue to be popular features
    • Products that cater to a younger group of seniors will increase eventually
  • The reverse mortgage market will become increasingly competitive
    • Margins will continue to be tight
    • A mature securitization market would simplify non-bank lender funding
    • Specialist brokers are set to become a more important distribution channel
    • Refinancing reverse mortgages may become more common
  • Reverse mortgage borrowers are a moving target
    • Attitudes are changing but still do not favor reverse mortgages
    • The usage pattern of borrowers will continue to evolve
    • The key to the market is improving customer penetration
  • Australian reverse mortgage advances will grow to A$1.2 billion in 2011
    • In a neutral scenario, Datamonitor predicts reverse mortgage advances to reach A$1.2 billion in 2011
    • A pessimistic scenario sees lower consumer acceptance
    • An optimistic scenario would entail strong growth in 2008
  • New Zealand reverse mortgage advances will reach NZ$190m in 2011
    • In a neutral scenario, Datamonitor predicts reverse mortgage advances to reach NZ$190m in 2011
    • In a pessimistic scenario growth will be slow for the next two years
    • In an optimistic scenario competition spurs growth
• APPENDIX
  • Data tables
  • Definitions
    • Cash rate target
    • Comparison rate
    • Current rate
    • Home equity
    • Lending commitments
    • Non-bank lender
  • Methodology
  • Forecasting methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
  • List of Tables
    • Table 1: Current providers of reverse mortgages in Australia, 2007
    • Table 2: ABN AMRO offers a maximum LVR of 15% to 60 year old borrowers in Australia, 2007
    • Table 3: Comparison rates for different ABN AMRO interest rate options, 2007
    • Table 4: Maximum LVRs offered by ASF, 2007 (%)
    • Table 5: Comparison rate table for different ASF interest rate options, 2007
    • Table 6: Bluestone offers a 45% LVR for seniors aged 85 years old, 2007
    • Table 7: Comparison rates for different Bluestone products, 2007
    • Table 8: CBA schedule of maximum LVRs and loan amounts, 2007
    • Table 9: Comparison rate schedule for the CBA Equity Unlock Loan for Seniors, 2007
    • Table 10: Maximum LVRs offered by OFG, 2007
    • Table 11: Comparison rate table for OFG reverse mortgages, 2007
    • Table 12: St.George offers very conservative LVRs, 2007
    • Table 13: Comparison rate schedule for two St.George reverse mortgage products, 2007
    • Table 14: Maximum LVRs offered by Bluestone NZ, 2007
    • Table 15: Rate options available for different Bluestone products in New Zealand, 2007
    • Table 16: Projected maximum LVRs to be offered by Dorchester, 2007
    • Table 17: Maximum LVRs offered by Savings & Loans, 2007
    • Table 18: Maximum LVRs offered by Sentinel, 2007
    • Table 19: Uses of reverse mortgage funds in New Zealand, July 2006
    • Table 20: Forecasted population age distribution in Australia, 1996-2026
    • Table 21: Reverse mortgage loan advances in Australia, 2003-07 (A$m)
    • Table 22: Reverse mortgage loan advances in New Zealand, 2003-07 (NZ$m)
    • Table 23: The proportion of fixed and variable rate new reverse mortgage lending in Australia, 2004-07
    • Table 24: Competitor market shares of reverse mortgage advances in Australia, 2005-07
    • Table 25: Competitor market shares of reverse mortgage advances in New Zealand, October 2007
    • Table 26: Competitor market shares of reverse mortgage advances in New Zealand, 2005-06
    • Table 27: Example of how a reverse mortgage works
    • Table 28: Forecasts of Australian reverse mortgage advances, 2003-11 (A$m)
    • Table 29: Forecasts of New Zealand reverse mortgage advances, 2003-11 (NZ$m)
  • List of Figures
    • Figure 1: A$624m was advanced on reverse mortgages in Australia in 2006
    • Figure 2: In 2006, reverse mortgage lending settlements grew to NZ$96m in New Zealand
    • Figure 3: Competitor market share of new reverse mortgage advances in Australia, October 2007
    • Figure 4: Competitor market shares of new reverse mortgages in New Zealand, October 2007
    • Figure 5: Datamonitor's neutral scenario predicts that Australian new reverse mortgage advances will reach A$1.2 billion in 2011
    • Figure 6: Datamonitor's neutral scenario predicts that New Zealand reverse mortgage advances will reach NZ$190m in 2011
    • Figure 7: How a typical reverse mortgage works
    • Figure 8: Many New Zealand borrowers use reverse mortgage funds for living expenses, 2006
    • Figure 9: In 2026, an estimated 20.7% of the Australian population will be 65 years old or over
    • Figure 10: A$624m was advanced on reverse mortgages in Australia in 2006
    • Figure 11: In 2006, reverse mortgage lending settlements grew to NZ$96m in New Zealand
    • Figure 12: The proportion of fixed rate reverse mortgage lending has increased, 2004-06
    • Figure 13: Competitor market share of new reverse mortgage advances in Australia, October 2007
    • Figure 14: Competitor market shares of new reverse mortgage advances over time, 2005-07
    • Figure 15: Competitor market shares of new reverse mortgages in New Zealand, October 2007
    • Figure 16: Market shares of new reverse mortgages in New Zealand, 2005-06
    • Figure 17: Datamonitor predicts Australian new reverse mortgage advances to reach A$1.2 billion in 2011
    • Figure 18: Datamonitor predicts New Zealand reverse mortgage advances to reach NZ$190m in 2011