Reverse mortgages hit hurdle
Rationalisation of lenders in the Australian reverse mortgage market is predicted due to oversupply, a new London report predicts.
Datamonitor’s report on the sector shows the reverse mortgage market slowing down in 2007 after several years of strong growth.
“The Australian reverse mortgage market is currently oversupplied with lenders,” the report’s author Petter Ingemarsson said.
“Competition has increased and margins have tightened, and some lenders are expected to exit the market, however, long-term prospects for this product are still favourable.”
The report, Reverse Mortgages in Australia and New Zealand 2007, has found only a small minority of Australian seniors use reverse mortgage or equity release products.
“Of almost two million eligible Australian households, only about 31,500 currently have a reverse mortgage, corresponding to a 1.6 per cent market penetration,” the report found.
Ingemarsson, who is a financial services analyst at Datamonitor, said total reverse mortgage advances in Australia grew from $239 million in 2004 to $624 million in 2006, which was an average yearly growth rate of 61.7 per cent.
“In 2007 total reverse mortgage advances are expected to reach $660 million, which only corresponds to 5.8 per cent growth over the previous year,” he said.
“This stagnation was caused by a combination of interest rate rises, concerns over the global credit environment and an uncertain property market.”
The report found Australia currently has 26 reverse mortgage lenders, which is up from six in 2004.
Ingemarsson said the reverse mortgage market would have to be three to four times as large to profitably sustain this number of lenders.
“Increasing competition and shrinking margins have put additional pressure on lenders, leading to predictions some companies will exit the market in 2008,” he said.
Despite a slow down, Datamonitor still believes the reverse mortgage market has a bright future.
“As a larger proportion of the population faces retirement insufficiently prepared, and as a larger proportion of wealth is held as equity, Datamonitor believes reverse mortgage products will inevitably become more common,” the report said.
“Datamonitor forecasts reverse mortgage advances to reach $1.2 billion in 2011, corresponding to an annual average growth rate of 15.5 per cent from 2007.”
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