Content supplied by Deloitte
Deloitte Australia’s Actuaries & Consultants released its seventh comprehensive study of the New Zealand reverse mortgage sector today.
Supported by New Zealand’s Safe Home Equity Release Plans Association (SHERPA), the study found New Zealand’s reverse mortgage market comprised 5,300 loans, with a total book of $444 million as at 31 December 2013, compared with 6613 loans valued at $447m four years previously.
Deloitte Partner Financial Services James Hickey said: “The New Zealand reverse mortgage market is stagnant, and has been for some time. Unfortunately, this presents a very real risk that New Zealand seniors are in danger of missing out on the opportunity to live a more comfortable retirement, at home.”
Hickey compares using a reverse mortgage to other more traditional forms of releasing equity, such as downsizing: “While downsizing is perhaps the obvious option to release money in the home, for many retirees it is too great an emotional and social upheaval to just sell the family home and move to a different location. Having an option to live in their home for longer, but being able to tap into the equity in the property via a reverse mortgage, could be much more preferable for such retirees. Kiwi Baby Boomers need all available options if they are to secure a financially comfortable retirement.”
Rob Dowler, Executive Director of SHERPA said: “The market size is on a par with pre-GFC levels, while the size of each borrowing has increased the number of both borrowers and settlements is significantly down. This is largely due to fewer lenders offering the product for sale.”
“However things are beginning to change. At SHERPA we are fielding more interest in the product from potential borrowers and lenders. As the drag on growth caused by uncertain and pressured global business environment begins to ease, we think the home equity release market will pick up along with the need for new business opportunities.”
Summary of the key findings:
James Hickey said: “Total repayments, both full and partial, this year are 14% p.a. of outstanding loans, with the majority due to voluntary repayment and sale of property.
“This shows that a reverse mortgage is not a ‘set and forget’ product but it is actively used by its borrowers to primarily fund the first stage of their retirement.”
The majority of borrowers in New Zealand are couples (more than half), borrowing around $10k more than their single counterparts. And dispelling the myth that the product is only for very old retirees, many new borrowers are “younger retirees” between the ages of 65-74.
Hickey said: “The top use for a reverse mortgages remains debt repayment, which is almost double that of the previous year, followed by home improvement and travel. These are positive responses and show that the product can really add value to retirees when used responsibly and supported by appropriate advice.”
Dowler added: “The North Island has the highest number of reverse mortgagees at 81% with Auckland the major location (14%). This is up by 20% since the 2010 report when the South Island had a 39% share, now down to 19%. Two thirds of the loans - 66% - are outside the major metropolitan areas, especially in the North Island.
3 Comments
Kiwis weary of reverse mortgages, and for good reason .
This is an expensive way to live with compounding interest working against you at very high rates .
This is only for the desperate , as its a sure road to poverty with the debt doubling every few years in interest alone
As I cannot fathom the mentality of those who consider gambling worthwhile, so am I flabergasted by those who would consider this an option. The numbers themselves are obscenely usurious, quite apart from the "get over it" you need to hear if you insist that you grow old by yourself in a 4 bedroom house.
Plan your life a little better and this whole market just dissolves, the wolves will have to hunt elsewhere.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.