Sentinel Lifetime Loan Index (National)
23 January 2006
Sentinel’s Loan Book Doubles in 2006, as Consumers Home Equity Release Market Grows
Senior retired people are seeking out home equity loans in steadily greater numbers to provide funds for their retirement, according to market leader Sentinel Limited.
Sentinel, which is three years old and has 90% of the home equity release market, experienced a nearly 100% increase in its loan book in 2006 over 2005 – from $89 million (at the end of 2005) to $176 million (at the end of 2006).
This represented a growth of 94% of numbers of loans – from 1801 loans at the end of 2005 to 3493 loans at the end of 2006
This growth is set against a background of Government consultation on the home equity release sector. Government is seeking to determine tighter regulations for providers of these loans (see www.osc.govt.nz).
Releasing Sentinel’s new annual Lifetime Loan index for New Zealand today, managing director Richard Coon said:
“We believe around 3000 new seniors will apply for these specialist loans in 2007. The Government’s timing on consultation for the sector to ensure consumers are well protected is right on the mark, given this burgeoning financial tool.
“Our research shows seniors are borrowing against their major asset responsibly and conservatively. For instance the average lump sum initial drawn down typically represents around 13% of the value of the property, leaving plenty of value in their homes now and for the future.
“Many borrowers use their loans to fix up or improve their homes – including painting them. Our research shows, for instance, that after retirement most New Zealand homes are only painted once every twenty years which is simply not enough to maintain the condition and value of a home. A bit of maintenance helps conserve the home’s value but people struggling on only Government superannuation can’t afford the upkeep. Seniors using these loans are also taking them out to pay off credit card or other high interest debt, thereby wisely consolidating debt at a lower interest rate. Some are also buying a more reliable car or taking a holiday, often to see relatives overseas.”
The average equity release initial loan drawn down has dropped slightly to $39,708 from $41,001 the year prior. “This is because in response to our customers, we dropped the minimum loan size from $20,000 to $10,000 and introduced an Express Top Up facility allowing people to release money as and when they need it, rather than all up front,” said Mr Coon.
Sentinel National Index…..2
The average age of borrowers is now 72 years (down from 73 years in 2006) – the oldest first time borrower being 95 years. The amount that can be borrowed increases with age.
Mr Coon said that in many ways New Zealanders were better placed than commentators on retirement suggested with their retirement savings.
“People in New Zealand save for retirement through their homes and are encouraged to do so through our tax system. There is still high home ownership in New Zealand,” he said. “This means they have a good nest egg, but have until recently had no firm idea how to access these funds in retirement. Increasingly too we’re seeing a lot of people struggling to manage on New Zealand Super. Home equity release is allowing easier access, and is widely used in many countries as a legitimate financial tool for doing so.
Sentinel Lifetime Loan Index 2005 2006
Average property value of borrowers $293 050 $307 705
Average initial drawn down $41 001 $39 708
Average Age 73 72
Married 68.9% 69.3%
Single – male 8.6% 8.6%
Single - female 22.5% 22%
Home Improvement 55% 55%
Consolidate Debt 24% 25%
Holiday 26% 25%
Extra Income 21% 18%
Purchases for the home 15% 12%
New Car 29% 24%
Gifts to family and friends 6% 5%
Other 0% 0%
Immediate healthcare needs 12% 11%
# Please note: these percentages do not add to 100 because people are using their loans in multiple ways i.e. there is more than one use they have for them.