Reverse mortgages are a way for cash-poor but asset-rich seniors to tap into property equity, and hold strong underlying potential. A new report * by independent market analyst Datamonitor shows that after several years of strong growth, the Australian reverse mortgage market has slowed down considerably in 2007. A rising interest rate environment, combined with uncertain property prices and exacerbated by global credit concerns, has led to decelerating growth rates.
"The Australian reverse mortgage market is currently oversupplied with lenders. Competition has increased and margins have tightened, and some lenders are expected to exit the market," comments Petter Ingemarsson, Financial Services Analyst and author of the report. "However, long-term prospects for this product are still favourable."
Reverse mortgages have been slow to catch on
Reverse mortgages are loans secured against property for senior home-owners, which usually require no repayments until the borrower moves out or dies and instead feature compounded interest added to the loan. Although reverse mortgages and other equity release products have been around for a long time, the products have never entered the mainstream and are still only used by a small minority of eligible seniors. Of almost two million eligible Australian households, only around 31,500 currently have a reverse mortgage, corresponding to a 1.6% market penetration.
Total reverse mortgage advances in Australia grew from A$239 million in 2004 to A$624 million in 2006, corresponding to an average yearly growth rate of 61.7%. In 2007 total reverse mortgage advances are expected to reach A$660 million, which only corresponds to 5.8% growth over the previous year. This stagnation was caused by a combination of interest rate rises, concerns over the global credit environment, and an uncertain property market.
The Australian market is oversupplied with lenders
The Australian reverse mortgage market currently has around 26 lenders, up from six providers in 2004. Industry sources reveal the market would have to be three to four times as large in order to profitably sustain this number of lenders. Increasing competition and shrinking margins have put additional pressure on lenders, leading industry insiders to predict some market exits in 2008.
However, the long term prospects for reverse mortgages are still very favourable, given solid underlying fundamental growth factors. As a larger proportion of the population faces retirement insufficiently prepared, and as a larger proportion of wealth is held as equity, Datamonitor believes products monetising equity will inevitably become more common. Datamonitor forecasts reverse mortgage advances to reach A$1.2 billion in 2011, corresponding to an annual average growth rate of 15.5% from 2007.
Three long-term factors point to a brighter future for reverse mortgages
There are three main long-term factors which suggest that reverse mortgages are set to become more common in industrialized countries:
• An aging population– Most developed countries have an aging population and improving public health will continue to make the final years of senior citizens more active.
• Insufficient retirement incomes– In many developed countries, pension contributions have not kept pace with the aging population.
• Equity wealth–The last decade has seen a global property boom, with residential properties soaring in price in developed economies across the world.
Source :Datamonitor's
Datamonitor's report, "Reverse Mortgages in Australia and New Zealand 2007 ", analyzes current market trends and upcoming developments in the reverse mortgage sector.
Petter Ingemarsson, financial services analyst with Datamonitor and author of the study, is available for comment.
To arrange an interview or for further details contact:
London:
Muriel Cantryn
T: + 44 20 7551 9412,
E : mcantryn@datamonitor.com.
Asia-Pacific:
Denis Mason
T: +61 2 8705 6903
E: dmason@datamonitor.com
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