Introduction
 
Reverse Mortgages in Australia and New Zealand 2005 updates Datamonitor's coverage of the Australian market and for the first time covers the market in New Zealand. It explains why there is interest in the product. It then profiles competitors in Australia and New Zealand. Finally, the report presents Datamonitor's opinion on the future of reverse mortgages in Australia and New Zealand.
 

 
Scope
 
Covers reverse mortgage markets in Australia and New Zealand with supplementary coverage of markets in the UK, the US and Canada
 
Profiles competitors including Australian Seniors Finance, Bluestone Equity Release, Commonwealth Bank, St George, Sentinel and Lifestyle Security
 
Based on interviews with executives working in the reverse mortgage industry in Australia and New Zealand
 
Also covers home reversion and shared equity products offered to retirees and first time buyers
 
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 or used to improve terms offered by a lender.
 

 
Although the St George Seniors Access Home Loan is a flexible product and is now more accessible than it was in early 2004 it remains a conservative product offering a low maximum loan amount and loan to value ratio. Even the minimum age limit is far from the lowest on the market with several players willing to lend to those aged 60 and over.
 

 
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 Australian and New Zealand markets
 
Learn about possible product enhancements based on experience in the UK, the US and Canada
 
Identify ways to maximise the effectiveness of your reverse mortgage distribution strategy
 

TABLE OF CONTENTS
 
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