ANZ won't, for now at least, be following ASB into the reverse equity mortgage market.
Jenny Fagg, chief executive of ANZ New Zealand, which operates the ANZ and National banks, told interest.co.nz the group wasn't considering reverse mortgages at "this exact point in time."
"Reverse mortgages come on and off the agenda," Fagg said. "There’s nothing imminent from ANZ."
Her comments came after ASB last week said it would offer asset rich but cash poor customers reverse equity mortgages.
ASB said the time was right for a major bank to offer reverse mortgages, which are currently only offered by specialist lenders at relatively high interest rates.
"These loans are specifically suited to people older than 65 years of age, and enable asset rich but cash poor home owners to borrow money against part of the equity they have in their home," ASB said.
Other providers of reverse mortgages include SBS Bank and Sentinel. Westpac used offer such mortgages, but pulled out of the market in August 2008.
There have been predictions that reverse equity mortgages will become more popular as an ageing population, sitting on big equity gains from the property boom, seeks to free up cash to cover the likes of medical bills, holidays and living expenses in extended retirements.
However, critics have pointed out that lengthening retirements and survivability allied to the power of compounding interest, could see equity eroded before any inheritance can be passed on. Falling house prices also increase the risks around reverse equity mortgages, given any equity in a house is being squeezed from both ends.
The Auckland District Law Society issued a warning paper about reverse equity mortgages in December 2007.
"Unless the borrower is over 70 years of age and intending to borrow only a small proportion of their equity, they should be very circumspect about entering into such a mortgage," it warned.
'Ethical' lending code called for
Bank workers' union Finsec has added its voice to criticism of ASB's move.
Finsec campaigns director Andrew Campbell said the global financial crisis had forced banks to improve their lending practices, so it was worrying to see the return of "exploitative" lending products like reverse equity mortgages. He said New Zealand needed a code of ethical lending and a consumer protection agency to make sure lenders act fairly.
“Banks should have learnt that pumping up customer debt leads to major economic instability," said Campbell.
"Banks should be encouraging stability by incentivising saving and home ownership, not setting up new debt products that could see people lose the entire value of their home.”
The global financial crisis had shown that banks behaving badly could destroy whole economies. Therefore banks needed to develop new operating models that weren't fixated on loading as much debt on customers as possible.
“ASB’s move into reverse mortgages is further evidence that we need new rules around bank lending," said Campbell.
"Finsec is calling for the establishment of a code of ethical lending and the establishment of a consumer protection agency to make sure lenders act fairly."
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