Please find attached and below, a media release surveying trends in the New Zealand reverse mortgage market over the past year.
Media Release 22 April 2008
New Zealand reverse mortgage study reveals total loans of more than $365m at 31 December 2007
Actuarial practice Trowbridge Deloitte today released the second comprehensive study of the New Zealand reverse mortgage sector. The study was supported by the Safe Home Equity Release Plans Association (SHERPA), the association for New Zealand’s providers of home equity release plans.
The Trowbridge Deloitte New Zealand Reverse Mortgage study found that the reverse mortgage market at 31 December 2007 consisted of more than 6,500 loans with a total book of almost $365 million. This represents growth of $138 million or 64% since the corresponding period of 31 December 2006.
James Hickey, Trowbridge Deloitte partner who led the study said, “The market has continued to grow strongly in the past 12 months with the sector’s outstanding loan book of $365 million at 31 December 2007 increasing from $227 million at the end of 2006.”
Mr Hickey also said that “settlements of new reverse mortgage loans were $106 million in 2007.”
Rob Dowler, Executive
Director of SHERPA, said, “Growth in total loan balances
remains strong but below earlier expectations for the year,
reflecting the difficult credit market conditions for
lenders in the latter half.”
Dowler forecasts that “if growth in settlements continues at this rate, it would imply total outstanding loan balances could exceed $500 million by the end of 2008.”
Summary of the key findings
Additional key statistics and directional trends are:
• Market grown by more than 60% in 2007
• Fixed interest loans emerged during 2007, more than 10% of new loans are fixed.
• 99% loans are lump sum, income stream style has yet to gain acceptance
• Broker and Advisor channel largest (60%), followed by Direct and Alliance
• Additional Draw downs are 10% p.a. of outstanding loans
• North Island has largest penetration (71%), with Auckland the major city (22%)
• Couples are more than half total borrowers, however less than half of discharges
• 70-79s largest age bracket, however 60-70 year olds continue to be a growth segment.
New information on additional drawings and discharges:
_ Just over one in four existing borrowers
drew down additional funds from their facility during the
year, and the average amount of additional drawdown was
_ Around 8% of outstanding loans were totally discharged over the year, with majority due to sale of property and voluntary repayment. In addition, partial repayments amounted to an additional 1% of the loan size outstanding
Commentary on findings
“The continued growth in the use of home equity release loans by retirees will remain underpinned by the very high proportion of New Zealanders’ wealth tied up in housing. A home equity release loan can be positively life changing when properly matched with a borrower’s need,” said Rob Dowler.
“The average age of all borrowers is 74, with an average loan size of $55,700,” he said.
James Hickey explained, “Draw downs were almost predominantly lump sums, with negligible take up so far of income stream reverse mortgages. Of such lump sum draw downs, the equity is primarily used for home improvements (28%), with the next most common use being for debt repayment.”
Dowler noted that only about 53% of the total approved loans are accessed straight away, down from 60% in 2006. "This illustrates that New Zealand borrowers are remaining well within their approval limits, and drawing down as they need funds. Should they later require additional advances of cash, they will have such access available up to their approved limit, as demonstrated by the additional average draw downs of $17,100 noted in this survey” he said.
Dowler said, “The North Island leads with the highest number of reverse mortgagees (71 percent). The South Island has 29 percent. Provincial interest in loans remains strong with 56% of new loans drawn down from outside the five largest metropolitan areas especially in the North Island.
Hickey highlighted that couples are the largest borrowing segment (54%) followed by single females (33%) and single males (13%). The average age of new borrowers is 72 years. Under 65s account for 11% of outstanding, and 65-69s account for 19% outstanding, both down about 2% from 2006. The under 65s use a high proportion of the facility available (75%) compared with those aged over 80 using just 40%, the difference in part explained by the lower amount of equity available to borrow at the younger age.
Hickey also explains, “The growth in fixed interest loans from virtually zero to 11% of new loans reflects the introduction of new fixed interest home equity release loan products in New Zealand just over a year ago.”
Discharges involve borrowers repaying their reverse mortgage either partially or in full. In 2007, 7.5% of all loans were fully discharged with a further 1% of outstanding debt partially repaid.
Hickey reveals that for the first time, Trowbridge Deloitte was able to distinguish the reason for discharge. “This showed that over three quarters of all discharges were due to voluntary repayments and sale of property. Only around one in 5 discharges were due to mandatory reasons, such as death or a move to aged care facilities.”
This is important as it shows that reverse mortgage borrowers are actively choosing to repay their debt before the natural end of the loan term. Dowler points out that this reinforces the flexibility offered by reverse mortgages. “Loans are often used for short term purposes and repaid once finances are available.”
Hickey said, “The mortgage broking channel is the most popular with 60 percent of reverse mortgage lending having been facilitated by a mortgage broker or financial planner. This early popularity of the broking channel shows that New Zealanders are using intermediaries to assist in the borrowing and advice process when it comes to reverse mortgages.”
Hickey believes that, “Brokers and financial planners are well placed to assist and advise borrowers on how reverse mortgages can be considered as part of holistic retirement planning for New Zealanders.”
Dowler said, “It is important to educate intermediaries on the unique characteristics of reverse mortgages, which is why SHERPA has set an objective this year to develop an advisor’s guide for home equity release loans. SHERPA is also continuing to work with the Office of Senior Citizens on the development of a statutory Code of Practice for the industry.”
See our media releases and research at www.deloitte.com.au.
Industry members that participated in the survey are listed below:
Bluestone Equity Release NZ Ltd: http://www.bluestone.net.nz
Savings and Loans Ltd: http://www.savingsandloans.co.nz
Sentinel Ltd: http://www.sentinelrs.co.nz
Southland Building Society: http://www.sbs.net.nz/
Standby Services Ltd (on behalf of the former Lifestyle Securities)
Trowbridge Deloitte thanks all industry participants who responded to the survey. Trowbridge Deloitte acknowledges the support of SHERPA (the Safe Home Equity Release Plans Association) in helping facilitate the survey in New Zealand.
Information on SHERPA and SHERPA member industry participants available at www.sherpa.org.nz