Introduction
 
This briefing reviews interest in reverse mortgages in New Zealand and drivers of future market growth. It then profiles leading competitors in the market including Sentinel, SAI Life and Lifestyle Security. Finally Datamonitor presents its opinion on the future of the product and its distribution as well as on the future competitive environment.
 

 
Scope
 
Covers the New Zealand reverse mortgage market with supplementary coverage of markets in Australia, the UK, the US and Canada
 
Profiles competitors including Sentinel, SAI Life and Lifestyle Security
 
Based on interviews with executives working in the reverse mortgage market in New Zealand
 
Highlights
 
Increased interest in reverse mortgages must be placed in the context of wider use of home equity. In recent years home equity has become much more accessible. Rather than seeing equity only as a 'stock' to be built up over time consumers see home equity as a 'flow' to be tapped as and when required.
 

 
The Lifestyle Security line of credit facility can unquestionably establish itself in the New Zealand market being structured very differently from competing products. It is Datamonitor's opinion that going forward this line of credit style products will become increasingly popular among reverse mortgage borrowers.
 

 
The average advance on a reverse mortgage will never be as large as that on a standard mortgage loan. However, as consumers regard reverse mortgages in a more positive light, retirees become less debt adverse and they incorporate reverse mortgages into their financial planning decisions they will be happier to borrow more.
 

 
Reasons to Purchase
 
Learn about reverse mortgage products currently offered on the New Zealand market
 
Learn about possible product enhancements based on experience in Australia, the UK, the US and Canada
 
Identify ways to maximise the effectiveness of your reverse mortgage distribution strategy

TABLE OF CONTENTS
 
LIST OF TABLES 7
 
LIST OF FIGURES 8
 
LIST OF FIGURES 8
 
INTRODUCTION 9
 
What is this report about? 9
 
Who is the target reader? 9
 
Scope 10
 
How to use this report 10
 
MARKET CONTEXT 11
 
Reverse mortgages explained 11
 
The history of reverse mortgages in New Zealand 17
 
Increased interest in reverse mortgages is being driven by six factors 18
 
New entrants are improving the availability of reverse mortgages 19
 
Historic property price increases have created considerable home equity wealth 22
 
Reverse mortgages are part of increased interest in accessing home equity rather than merely building it 25
 
An ageing population indicates long term demand for reverse mortgages 26
 
Poor retirement incomes are encouraging consumers to consider reverse mortgages 27
 
Property is now commonly being seen as a retirement funding vehicle 28
 
Changing attitudes towards indebtedness suggest increased demand for reverse mortgages among the baby boomer population 29
 
Changing attitudes towards inheritance and innovative product design make reverse mortgages more appealing 31
 
Estimating the size of the reverse mortgage market in New Zealand 32
 
Reverse mortgage advances in New Zealand amounted to less than NZ$40 million during 2004 32
 
Reverse mortgages overseas 33
 
Reverse mortgages in Australia 33
 
Reverse mortgages in the UK 37
 
Reverse mortgages in the US 47
 
Reverse mortgages in Canada 51
 
COMPETITIVE DYNAMICS IN NEW ZEALAND REVERSE MORTGAGE MARKET 54
 
Sentinel 54
 
The Lifetime Home Equity Release Loan 54
 
Lifestyle Security 59
 
Line of credit facility 59
 
SAI Life 61
 
The Reverse Annuity Mortgage 61
 
Market shares in the New Zealand reverse mortgage market, May 2005 64
 
FUTURE DECODED 67
 
The future of the product 67
 
The way reverse mortgages are used is destined to change with more borrowers using funds for lifestyle purposes 67
 
Reverse mortgages will increasingly be seen as a financial planning tool 69
 
Flexibility is key for the future of the reverse mortgage market 70
 
The future of the competitive environment 74
 
The reverse mortgage market in New Zealand will witness competitive entry and competitive withdrawal 74
 
The future of distribution 76
 
Financial planners hold the key to the use of reverse mortgages as a financial planning tool 76
 
Mortgage brokers must be engaged as they represent an important distribution channel 76
 
APPENDIX 79
 
Supplementary data 79
 
Calculating home equity held by the over 60s 81
 
Definitions 82
 
Future readings 83
 
Relevant links 83
 
Datamonitor’s custom research capabilities 84
 
SPP writing team 85
 
How to contact experts in your industry 86
 

 
LIST OF TABLES
 
Table 1: The historic and future ‘greying’ of the New Zealand population, 1991-2051 27
 
Table 2: Investment property ownership by age in New Zealand, 2001 29
 
Table 3: UK providers of lifetime mortgages and home reversion plans 38
 
Table 4: The performance of the UK equity release market, 2002 – 2004 43
 
Table 5: The maximum loan to value ratios on the Sentinel Lifetime Home Equity Release Loan 55
 
Table 6: The Sentinel Lifetime Home Equity Release Loan 56
 
Table 7: The maximum loan to value ratios on the Sentinel Retirement Village Lifetime Loan 57
 
Table 8: The Sentinel Retirement Village Lifetime Loan 58
 
Table 9: Maximum loan to value ratios on the Lifestyle Security line of credit 59
 
Table 10: The Lifestyle Security Line of Credit 60
 
Table 11: The SAI Life Reverse Annuity Mortgage 63
 
Table 12: Market shares by competitor in the New Zealand reverse mortgage market, May 2005 66
 
Table 13: Expectancy of life for males and females in New Zealand 72
 
Table 14: Total home equity in owner occupied properties in New Zealand, 2004 79
 
Table 15: The changing structure of the UK equity release market, 1998-2004 80
 
Table 16: Comparison table of reverse mortgages currently offered on the New Zealand market 81
 

 
LIST OF FIGURES
 
Figure 1: Graphic highlighting how the amount outstanding changes on a reverse mortgage compared to on a forward mortgage product 12
 
Figure 2: In contrast to a forward mortgage a reverse mortgage converts equity into income 13
 
Figure 3: The strugglers account for the bulk of current reverse mortgage lending volumes 16
 
Figure 4: Sentinel is the largest provider of reverse mortgages in New Zealand followed by SAI Life and Lifestyle Security 20
 
Figure 5: The median property price in New Zealand stood at NZ$260,000 in December 2004, up from NZ$178,000 in December 2001 23
 
Figure 6: Total home equity in New Zealand owner occupied properties amounted to almost AUS$170 billion at the end of 2004 25
 
Figure 7: Players in the Australian reverse mortgage market 35
 
Figure 8: The options available on the Bank of Scotland Shared Appreciation Mortgage (SAM) between 1996 and 1998 41
 
Figure 9: Home reversion plans have always accounted for a small share of the UK equity release market, a share that has declined in recent years 44
 
Figure 10: Almost 40,000 Home Equity Conversion Mortgages (HECMs) were advanced in the US in 2004, up from less than 8,000 in 2001 50
 
Figure 11: Sentinel is now almost unchallenged in the New Zealand reverse mortgage market accounting for more than 90 per cent of the market 65
 
Figure 12: Datamonitor’s core consulting capabilities 85