Brokers are expected to see a significant increase in demand for reverse mortgages in coming years as a result of Australia’s ageing population.
According to the Mortgage and Finance Association of Australia (MFAA), the next decade will see a doubling in reverse mortgages as the baby boomer generation looks to cash in on their assets.
Figures from the latest Deloitte’s Reverse Mortgage Survey show that approximately 40,000 reverse mortgages worth $3.6bn were written in 2014, up from around 16,000 worth $750m in 2005.
“Asset rich and cash poor baby boomers will significantly accelerate the number or reverse mortgage loans within the next ten years. This trend is in line with what has been shown over the past decade in Deloitte’s survey,” MFAA panel member Rose M DeRossi said.
“Falling interest rates, the rising cost of living and current economic downturn are also driving baby boomers to use reverse mortgages. We are finding that older clients still hold debt and are not managing on their pension or savings.”
Currently, only a small number of lenders offer reverse mortgages and brokers are required to hold additional qualifications, such as a SEQUAL accreditation or Seniors Australians Equity Release. Reverse mortgages can also include pitfalls such as higher interest rates than a normal mortgage and situations where client equity could be absorbed by interest. However, DeRossi believes they hold numerous benefits for both brokers and consumers.
“Reverse mortgages offer many benefits including they improve cash flow, no repayments are required, quick access to equity is available, proof of income is not required, the interest rates are relatively low, they offer peace of mind in retirement, extra money is available for activities such as travel and they do not affect the pension unless the money is invested,” she said.
“Many mortgage brokers feel reverse mortgages are too hard, or there is not enough commission as they are usually smaller loans. However, if you look at the bigger picture, the matriarchs and patriarchs of the family have a lot of referral power to other family members, neighbours and the community.”