Interest rate hikes are driving a trend among reverse mortgage clients on variable rates to fix their rate, according to ABNAmro head of reverse mortgages Martin Lynch.
“In the two years to October 2007 we had had only two customers coming back to fix their loans, but since then we have had 17 customers use that option, totalling in excess of $1 million,” he said.
Lynch said the numbers represent a significant shift and could be swelled further by projected further rate increases this year, as mooted by the Reserve Bank.
He added that the company was experiencing an increase in clients actually setting a loan, but then adopting a wait-and-see attitude before they actually draw on it.
“Because we do not charge any ongoing fees these clients are content to see the loan as a rainy day facility while they wait to see which way rates will go.”
ABN Amro is also “starting to see more of a migration from other providers because at 9.3 per cent we have the product on the market at the lowest variable rate”, he said.
“The migration is coming particularly from the Commonwealth Bank (CBA) and St George, which have a variable rate that is dramatically higher than ours at 10.05 per cent.”
“With reverse mortgages on a compounding rate of interest, a 75 basis point difference can be painful for customers in these products.”
He said people “tend to have taken out those St George and CBA loans between three and five years ago, when there was not much choice”.
“Now that the gap between where St George and CBA are on rates and where we are, people are saying it is worth the hassle to change.”
“It does seem to be occurring particularly among clients who have a financial adviser, who are drawing their attention to it.”
