Growth slows in reverse mortgages

The reverse mortgage market in Australia expanded by 67 per cent to $1.8 billion in the 12 months to June 2007, according to the third Trowbridge Deloitte study commissioned by SEQUAL, the industry lobby.

Growth is slowing, though. In the six months to June 2007, the number of outstanding loans grew 13 per cent to 31,500, with the average loan value increasing by six per cent to $57,000.

"On average, 10 per cent per annum of all reverse mortgages will be repaid by the borrowers in full", according to Trowbridge Deloitte partner James Hickey who led the study.

"It indicates that these products do not have to be 'set and forget', where they are left to accumulate interest for the life of the borrower."

Hickey continued by adding the findings indicate customers are enjoying the benefits of accessing their funds now, then voluntarily extinguishing the debt in the future when the time suits them.

Kieren Dell, executive director of SEQUAL, added that the loans are being used to fund accommodation bonds, sea or tree changes or as bridging finance.

"These borrowers were not letting their reverse mortgage capitalise interest for long periods. Some are even using the loans short term to tide them over until they receive an inheritance."

Key statistics according to Trowbridge Deloitte:

• Payment type of funds drawn: lump sum 80-85 per cent, income stream 15-20 per cent

• Interest rate type: majority variable, fixed rates increasing with 30 per cent of new loans

• Channel for new loans: brokers 44 per cent, direct 36 per cent, planners 9 per cent and alliances 11 per cent

• Geographic split: NSW 32 per cent, Victoria 23 per cent and Queensland 22 per cent

• Demographics: couples 48 per cent, single female 38 per cent and single male 16 per cent

• Age segment: 53 per cent are aged 70-79

• New borrowers under 65: reduced from 20 per cent in 2006 to 13 per cent in 2007