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Reverse Mortgages in Australia and New Zealand 2005
Datamonitor, June 2005, Pages: 172
EXECUTIVE SUMMARY 3
Market Context 3
Competitive dynamics of the Australian reverse mortgage market 7
The Commonwealth Bank Equity Unlock Loan for Seniors 8
Competitive dynamics of the New Zealand reverse mortgage market 10
Lifestyle Security Line of credit facility 10
Future Decoded 12
The way reverse mortgages are used is destined to change with more borrowers using funds for lifestyle purposes 12
Financial planners hold the key to the use of reverse mortgages as a financial planning tool 13
LIST OF TABLES 20
LIST OF FIGURES 23
INTRODUCTION 25
What is this report about? 25
Who is the target reader? 26
Scope 26
How to use this report 26
MARKET CONTEXT 28
Reverse mortgages explained 28
The history of reverse mortgages in Australia and New Zealand 38
Increased interest in reverse mortgages is being driven by seven factors 41
New entrants are quickly improving the availability of reverse mortgages and similar products 42
Historic property price increases have created considerable home equity wealth 47
Reverse mortgages are part of increased interest in accessing home equity rather than merely building it 53
Ageing populations indicate long term demand for reverse mortgages 55
Poor retirement incomes are encouraging consumers to consider reverse mortgages 59
Increased media coverage indicates greater awareness of reverse mortgages and improved product perception 61
Property is now commonly being seen as a retirement funding vehicle 63
Changing attitudes towards indebtedness suggest increased demand for reverse mortgages among the baby boomer population 64
Changing attitudes towards inheritance and innovative product design make reverse mortgages more appealing 66
Estimating the size of the reverse mortgage markets in Australia and New Zealand 67
Reverse mortgage advances in Australia amounted to more than AUS$250 million in 2004 67
Reverse mortgage advances in New Zealand amounted to less than NZ$40 million during 2004 68
Reverse mortgages overseas 68
Reverse mortgages in the UK 68
Reverse mortgages in the US 80
Reverse mortgages in Canada 84
COMPETITIVE DYNAMICS IN THE AUSTRALIAN REVERSE MORTGAGE MARKET 87
Australian Seniors Finance 87
The Lifetime Loan 87
Bendigo Bank 90
Homesafe Equity Release 91
Bluestone Equity Release 95
Equitytap 95
Commonwealth Bank 102
The Equity Unlock Loan for Seniors 102
HomeStart Finance 105
The Seniors Equity Loan 105
Macquarie Bank 108
Silver Living 108
Mortgage House 112
OFM 112
The Seniors Home Equity Release Loan 113
Police and Nurses Credit Society 116
The Easy Living Access Loan 117
StateWest Credit Society 119
The Reverse Equity Loan 120
St George 121
The Seniors Access Home Loan 121
Market shares in the Australian reverse mortgage market, May 2005 124
COMPETITIVE DYNAMICS IN NEW ZEALAND REVERSE MORTGAGE MARKET 128
Sentinel 128
The Lifetime Home Equity Release Loan 128
Lifestyle Security 133
Line of credit facility 133
SAI Life 135
The Reverse Annuity Mortgage 135
Market shares in the New Zealand reverse mortgage market, May 2005 138
FUTURE DECODED 141
The future of the product 141
The way reverse mortgages are used is destined to change with more borrowers using funds for lifestyle purposes 141
Reverse mortgages will increasingly be seen as a financial planning tool 143
Flexibility is key for the future of the reverse mortgage markets in Australia and New Zealand 144
Home reversion products will remain an alternative to reverse mortgages but not a popular one 149
The future of the competitive environment 151
Reverse mortgage markets in Australia and New Zealand will witness competitive entry and competitive withdrawal 151
If markets in Australia and New Zealand replicate the UK experience the competitive structure of these markets will change 153
The future of distribution 156
Financial planners hold the key to the use of reverse mortgages as a financial planning tool 156
Mortgage brokers must be engaged as they represent an important distribution channel 157
APPENDIX 160
Supplementary data 160
Calculating home equity held by the over 60s 166
Definitions 168
Future readings 168
Relevant links 169
Datamonitor’s custom research capabilities 170
SPP writing team 171
How to contact experts in your industry 172
LIST OF TABLES
Table 1: UK providers of lifetime mortgages and home reversion plans 7
Table 2: Maximum loan amount and loan to value ratio on Commonwealth Bank Equity Unlock Loan for Seniors 8
Table 3: Maximum loan to value ratios on the Lifestyle Security line of credit 11
Table 4: Trading down compared to taking out a reverse mortgage 34
Table 5: The historic and future ‘greying’ of the Australian population, 1971-2051 56
Table 6: The historic and future ‘greying’ of the New Zealand population, 1991-2051 57
Table 7: Investment property ownership by age in New Zealand, 2001 64
Table 8: UK providers of lifetime mortgages and home reversion plans 71
Table 9: The performance of the UK equity release market, 2002 – 2004 75
Table 10: The maximum loan to value ratios applying to the Australian Seniors Finance Lifetime Loan 88
Table 11: The Australian Seniors Finance Lifetime Loan 89
Table 12: The Bendigo Bank Homesafe Equity Release 93
Table 13: The maximum loan to value ratios applying for singles and couples on the Bluestone Equitytap 97
Table 14: The Bluestone Equitytap product 99
Table 15: Maximum loan amount and loan to value ratio on Commonwealth Bank Equity Unlock Loan for Seniors 102
Table 16: The Commonwealth Bank Equity Unlock Loan for Seniors 103
Table 17: The HomeStart Finance Seniors Equity Loan – Option 2 107
Table 18: The maximum loan to value ratios for Macquarie Bank’s Silver Living loan 109
Table 19: The various repayment and pricing options on the Macquarie Bank Silver Living product 110
Table 20: The Macquarie Bank Silver Living loan 111
Table 21: The maximum loan to value ratios on the OFM Seniors Home Equity Release Loan 113
Table 22: The OFM Seniors Home Equity Release Loan 115
Table 23: The Police and Nurses Credit Society Easy Living Access Loan 117
Table 24: The StateWest Reverse Equity Loan 120
Table 25: The lending criteria on the St George Seniors Access Home Loan 122
Table 26: The St George Seniors Access Home Loan 123
Table 27: Market share by competitor in the Australian reverse mortgage market, May 2005 127
Table 28: The maximum loan to value ratios on the Sentinel Lifetime Home Equity Release Loan 129
Table 29: The Sentinel Lifetime Home Equity Release Loan 130
Table 30: The maximum loan to value ratios on the Sentinel Retirement Village Lifetime Loan 131
Table 31: The Sentinel Retirement Village Lifetime Loan 132
Table 32: Maximum loan to value ratios on the Lifestyle Security line of credit 133
Table 33: The Lifestyle Security Line of Credit 134
Table 34: The SAI Life Reverse Annuity Mortgage 137
Table 35: Market shares by competitor in the New Zealand reverse mortgage market, May 2005 140
Table 36: Expectancy of life for males and females in Australia and New Zealand 147
Table 37: Trading down compared to taking out a reverse mortgage 160
Table 38: Total home equity in owner occupied properties in Australia, 2004 161
Table 39: Total home equity in owner occupied properties in New Zealand, 2004 162
Table 40: The changing structure of the UK equity release market, 1998-2004 163
Table 41: Comparison table of reverse mortgages currently offered on the Australian market 164
Table 42: Comparison table of reverse mortgages currently offered on the Australian market continued 165
Table 43: Comparison table of reverse mortgages currently offered on the New Zealand market 166
LIST OF FIGURES
Figure 1: Graphic highlighting how the amount outstanding changes on a reverse mortgage compared to on a forward mortgage product 29
Figure 2: In contrast to a forward mortgage a reverse mortgage converts equity into income 31
Figure 3: The strugglers account for the bulk of current reverse mortgage lending volumes 37
Figure 4: Players in the Australian reverse mortgage market 43
Figure 5: Sentinel is the largest provider of reverse mortgages in New Zealand followed by SAI Life and Lifestyle Security 45
Figure 6: The property market ‘cooling’ in Australia in 2004 should not detract from the massive increases in prices experienced over the last few years 48
Figure 7: Total home equity in Australian owner occupied homes amounted to more than AUS$840 billion at the end of 2004 50
Figure 8: The median property price in New Zealand stood at NZ$260,000 in December 2004, up from NZ$178,000 in December 2001 51
Figure 9: Total home equity in New Zealand owner occupied properties amounted to almost AUS$170 billion at the end of 2004 53
Figure 10: Media coverage of reverse mortgages has increased in recent years with 143 media articles mentioning reverse mortgages in 2004 62
Figure 11: The options available on the Bank of Scotland Shared Appreciation Mortgage (SAM) between 1996 and 1998 73
Figure 12: Home reversion plans have always accounted for a small share of the UK equity release market, a share that has declined in recent years 76
Figure 13: Almost 40,000 Home Equity Conversion Mortgages (HECMs) were advanced in the US in 2004, up from less than 8,000 in 2001 83
Figure 14: The companies of the Bluestone Group 95
Figure 15: Since June 2004 the variable rate reverse mortgage providers have increased their rates while Bluestone has lowered its rate from 8.95 per cent to 8.69 per cent 100
Figure 16: Police and Nurses Credit Society’s Easy Access Loan has the lowest comparison rate of all reverse mortgage products currently offered in Australia 119
Figure 17: St George and Commonwealth Bank remain the largest players in the Australian reverse mortgage market with more than 65 per cent of the market between them 126
Figure 18: Sentinel is now almost unchallenged in the New Zealand reverse mortgage market accounting for more than 90 per cent of the market 139
Figure 19: The competitive structure of the UK equity release market 153
Figure 20: Datamonitor’s core consulting capabilities 171
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