A new report from Deloitte has found that banks continue to write the bulk of business in Australia’s $3.7 billion reverse mortgage market.
Settlements from the third-party channel, including brokers and planners, were 31 per cent in 2014, while the direct channel accounted for 69 per cent.
Released today, Deloitte’s annual reverse mortgage report found that large banks including CBA, St George, Bankwest and Macquarie continue to support Australian retirees in accessing a valuable form of home equity release via reverse mortgages.
The report found that the use of property to be considered alongside other retirement sources is an area of emerging interest across broader financial services organisations including industry funds, retail wealth managers, banks and non-bank lenders.
Deloitte estimates more than $500 billion of home equity is held by Australians aged over 65, with the total reverse mortgage loan book worth $3.66 billion as at the end of 2014.
“Although the Australian reverse mortgage loan book grew more than 3 per cent to the current $3.66 billion, it represents a small proportion of the potential funds available to be accessed by senior Australians,” Deloitte partner financial services James Hickey said.
“Currently there are almost 40,000 reverse mortgages on issue in Australia with an average loan size of $92,000, up from $86,000 in 2013,” Mr Hickey said.
“The top three uses for the released equity remain debt consolidation, supporting an income stream and home improvements. However, this year there was renewed interest in how the product could be structured to support financing needs for Aged Care accommodation bonds.”
Mr Hickey said the changes to aged care accommodation payments that came into effect 1 July 2014 with the ‘Living Longer, Living Better’ reforms, have generated additional interest in how reverse mortgages can play a far greater role in assisting senior Australians navigate one of the most stressful stages of retirement, that of financing the accommodation bond.
“For many retirees the equity in their home continues to represent two thirds or more of their entire wealth, well in excess of their superannuation balance,” he said.
“While many people may ordinarily access this housing equity by downsizing, there are many challenges to that approach.”
Having to sever the emotional ties to the family home, the availability and suitability of properties to downsize to, and the treatment of monies released in the assets test for social security purposes are all challenges to equity release, Mr Hickey said.
The report found that some 3,400 new borrowers took out a reverse mortgage in 2014.
The average size of a reverse mortgage loan is now nearly $92,000. In addition to new borrowers, 4,900 borrowers voluntarily repaid their reverse mortgage loan in 2014 (representing 12 per cent of total borrowers).
“This shows that many borrowers are using the product to cover short-term needs and then repay the mortgage once they are ready to finally downsize their home,” Mr Hickey said.