SBS Bank eyes opportunity in reverse mortgage market

CEO Shaun Drylie says SBS Bank's looking to assist with a gap in the market for reverse mortgages, which he expects there to be a growing need for in New Zealand

Banking

CEO Shaun Drylie says SBS Bank's looking to assist with a gap in the market for reverse mortgages, which he expects there to be a growing need for in New Zealand

7th Jun 19, 5:00am by Gareth Vaughan

SBS Bank CEO Shaun Drylie is indicating a renewed push in the reverse mortgage market.

Drylie told interest.co.nz SBS plans on "doing some work around our reverse equity mortgages."

"I think there's only us and Heartland [Group Holdings] that offer that product in the market at the moment. And I think there will be a growing need in New Zealand for a product like that for people to be able to release equity in their properties. And that seems to have been a real gap in the market that we'll look to assist in," says Drylie.

As of March 31 SBS held $72.4 million worth of reverse mortgages, little changed from $71.817 million a year earlier. Its current reverse mortgage interest rate is 7.55%.

Heartland entered the reverse mortgage market on both sides of the Tasman in 2014 after buying Sentinel in NZ and the Australian Seniors Finance business for $87 million from the Quadrant Private Equity controlled Seniors Money International. As of December 31 Heartland had reverse mortgage gross receivables of $481.5 million in NZ, and $733.3 million in Australia. Locally its current interest rate is 7.82%.

A reverse mortgage is a loan secured by a residential property where no principal payments and generally no interest payments become due until the property is vacated or sold, at which point principal and compounded interest payments are due. Recourse to other assets is normally not available to the reverse mortgage lender, which means that the lender bears any negative equity risk. Reverse mortgages are generally marketed to borrowers who are retired and have significant equity in their home. A reverse mortgage thus allows the borrower to access the equity without having to repay or service the loan whilst living in the property.

Drylie, a former ASB manager, became SBS's CEO in August 2016.

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9 Comments

by Nzdan | 7th Jun 19, 7:46am 1559850366

Reverse Mortgages may be the next best thing to actually downsizing over the coming years. Why leave anything to the kids when you can leave it to the banks? Plus, the Boomer generation will start hitting retirement age en masse over the coming years so there could be a surplus of properties hitting the market looking to release this equity. There needs to be a safety net for those who struggle to sell.

by D581 | 7th Jun 19, 8:33am 1559853187

Yeah! One last "screw you, I want mine" to the younger generations.

by Lanthanide | 7th Jun 19, 9:56am 1559858217

"Plus, the Boomer generation will start hitting retirement age en masse over the coming years so there could be a surplus of properties hitting the market looking to release this equity. "

Yeah, but the lenders will be taking this into account and thus offering smaller capital payouts as a way to mitigate against the risk of negative equity. Also with this type of lending there's much more of a chance of a lender to reach a fixed $ limit of how many of these loans they can have on their books and once they reach that cap they aren't able to lend any further, because there's no constant cashflow coming in to reduce the debt burden.

by Nzdan | 7th Jun 19, 1:11pm 1559869891

Oh, so what's on paper might be just that?

by Yvil | 7th Jun 19, 9:21am 1559856091

I only see the point in a reverse mortgage if you don't have any kids.

by mfd | 7th Jun 19, 9:30am 1559856642

Care to expand on that? Because you can borrow the money more cheaply from your kids, or because you feel that parents should live out their days in relative poverty to preserve an inheritance? Personally I'd rather see my parents enjoy their retirement than concern themselves over me, they brought me up to look after myself.

by Cantabrians | 7th Jun 19, 10:31am 1559860283

It isn't a "gap in the market" if another firm (HGH) is already offering the product. I applaud the competition however.

by Glitzy | 7th Jun 19, 2:11pm 1559873509

How on earth do the banks justify those interest rates lending secured against a property ? Its akin to robbery. RBNZ should take a look at this and cap at a spread over NZ Treasuries. Allowing vulnerable old folks to be stiffed isn't acceptable.

by ngakonui gold | 7th Jun 19, 2:18pm 1559873899

No expertise in this area but i presume the banks interest rates are high because they aren't getting a return on the money and no return until you kick the bucket.