Property boom accelerating reverse mortgage repayments: Heartland

Heartland posted its 2021 financial year results, revealing a net profit of NZ$87 million ($83.4 million), up by 20.9 per cent year-on-year.

The group generated 15.8 per cent more in net operating income, recording NZ$251.2 million.

The Australian reverse mortgage business had contributed NZ$36.2 million to Heartland’s net operating income, 5.5 per cent more than in FY20.

The segment’s receivables were up by 9.5 per cent to NZ$1 billion, although Heartland recorded historically high repayments amid a buoyant property market, seniors moving in with family and pooling financial resources, and a move to sell higher-value homes and downsize.

Repayments totalled at NZ$154 million for the year, 39 per cent more than FY20, while the repayment rate sat at 16.9 per cent, versus 14.6 per cent the year before.

Similarly, the New Zealand reverse mortgage arm saw a 43 per cent surge in repayments, which affected its receivables growth.

But repayments slowed in the final quarter as property sales were restricted by lockdowns.

Heartland Australia also saw a drop in reverse mortgage originations during the year, down by NZ$15 million (8 per cent) to NZ$189 million.

The company noted it had been boosted by mortgage aggregators across Australia, including AFG, Choice Aggregation and PLAN Australia.

Heartland has signalled expansion ambitions for its product offerings in Australia, as the population ages – with plans to adjust the age requirements for its reverse mortgage to enable access to funds sooner.

The group had experienced subdued growth in the first half of the year, through reduced business and consumer confidence. The second half showed higher levels of growth across most portfolios.

Harmoney and Heartland’s other personal lending businesses produced NZ$16.6 million, down 22.4 per cent compared with FY22.

The Australian Harmoney portfolio fell by 9.5 per cent to NZ$48.8 million, while the New Zealand loan book contracted by 47.4 per cent to NZ$76.7 million. Heartland attributed the falls to high repayments, as well as Harmoney using more of its own on-balance sheet funding facilities.

Although the Heartland group has yet to dig into its COVID protective buffer of NZ$9.6 million that it allocated in FY2020, the overlay remains in place and Heartland has said it will continue to exercise caution.

“The impact of COVID-19 on Heartland’s portfolios has been more benign than initially forecast, and the COVID-19 economic overlay remains unutilised,” the company stated.

“However, there remains significant uncertainty. In particular, the continued prevalence of COVID-19 (including the emergence of new variants), vaccination rates, lockdowns in Australia and now in New Zealand and continued uncertainty regarding when borders will reopen.”

Still, Heartland has issued a profit guidance for FY22 in the range of NZ$93 million to NZ$96 million – a potential year-on-year rise of 6 to 10 per cent.

After eased restrictions on bank dividends from the Reserve Bank of New Zealand, the board also declared a FY21 final dividend of NZ$0.07 per share, taking the full year total payout to NZ$0.11 per share.

[Related: Sydney housing resilient in lockdown]