The reverse mortgage market isn’t living up to its full potential and risks becoming a missed opportunity, according to Deloitte’s 11th annual study of the sector, released today.
While the $3.5 billion market has clocked up more than 7% growth since 2012, the Deloitte report claims that, with the ‘tailwinds’ of the baby boomers retiring and an increasing focus on post-retirement funding, the opportunities in the equity release market are in danger of being missed by banks and other financial services organisations.
As of 31 December, 2012, more than 42,000 senior Australian households had a reverse mortgage with total balances of $3.5 billion and James Hickey, the Deloitte financial services partner who led the study, says there’s obvious potential for even greater growth.
“The size of the senior Australian population is set to increase by more than 50% in the next decade. For many of these senior Australians, their house will remain their primary asset in retirement,” says Hickey.
“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.”
However, he says the opportunity goes further than just the banks.
“Equity release products should be on the radar of any financial services organisation with ageing members, including the large industry superannuation funds.”
Hickey adds that, contrary to popular perceptions, the financial services industry is seeing significant interest in the product from ‘active’ retirees aged in their 60s and early 70s.
“These are senior Australians who want to travel and renovate their homes, as well as settle their debts and enjoy their new found freedom without having to significantly tap into their superannuation, or downsize their homes.”
Currently, there are less than five active lenders offering the product – having reduced from more than 15 prior to the GFC.
Hickey says the primary reason for the reduction in lenders was not the lack of demand by senior Australians, but the inability of many of the former non-bank, second tier banks, and credit unions lenders that previously focused on equity release products, to find available funding supply.
He says Deloitte believes that for those lenders with access to funding - that are seeking long term returns - a reverse mortgage product can be an economically attractive investment.