Reverse mortgage growth hangs on Budget

Tonight’s federal Budget could incentivise retirees to release equity in their homes, driving new demand for reverse mortgages.

Equity release currently counts against homeowners’ pension entitlements, but changes to the Budget could see pensioners downsize and release equity from their homes, Deloitte partner James Hickey told Mortgage Business.

“At the moment, where is the incentive when you’re sitting on a $1.5 million property to sell it?” Mr Hickey said.

“If you suddenly sold it and moved into a $750,000 townhouse and released $750,000 that counts against you for the pension entitlement” he said.

“If the Budget changes that, suddenly people may start to downsize.”

Mr Hickey said this could impact the supply of stock in the marketplace and the generational transfer of property.

Budgetary changes may also spur lenders to revisit the reverse mortgage market, Mr Hickey said.

“The Budget could influence the development of mortgage products in terms of how you tie in the generational transfer of equities being released from, say, the grandparents’ house to possibly assisting first home buyers,” he said.

Last year, Deloitte published its annual study of the Australian reverse mortgage sector, Australia’s equity release market – an opportunity being missed, which found new lending had grown by 7 per cent in over 12 months to $3.5 billion.

“There is a clear potential for even greater growth in this market as the size of the senior Australian population is set to increase by more than 50 per cent in the next decade,” Mr Hickey said in the report.

“For many of these senior Australians their house will remain their primary asset in retirement,” he said.

“For banks seeking to grow their share of the lending market, and remain relevant to their customers as they move into retirement, products that help this constituency access the wealth tied up in their homes, such as reverse mortgages, are worthy of serious consideration.”

The Commonwealth Bank is the only major lender that currently offers reverse mortgages.

Bank of Melbourne, BankSA, Bankwest, HomeStart Finance, Macquarie Bank, St George and P&N Bank also have an equity release option.

But not all lenders feel they are missing an opportunity.

“The GFC was unkind to reverse mortgages and many providers found themselves with no way to fund their loans,” Firstmac managing director Kim Cannon said.

“It is a very specialised field of lending which has never been our core business, and it’s not one we are planning to move into any time soon,” he said. 

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