The Reverse Mortgage market in Australia

The Senior Australian Equity Release Association of Lenders (SEQUAL) is a not-for-profit member organisation established January 2005, as a voluntary oversight group for lenders within the reverse mortgage market. Their roles include customer education, borrower protection, and enforcement of a Code of Conduct.

SEQUAL also carries out periodic analyses of the reverse mortgage market in Australia. The data in this article is drawn from their latest report, prepared by Trowbridge Deloitte in June 2007.

The reverse mortgage market is the fastest growing sector of the mortgage industry, with a growth rate of 20% during the previous six months and 67% in the previous twelve.

There are currently 31,500 existing reverse mortgages in Australia, up from 27,900 in December 2006. The aggregate amount of these loans equals $1.81 billion. There were 5100 new reverse mortgages written during these previous six months, and 1450 existing loans were discharged.

The average loan size is currently $57,350, up from $54,200 in December 2006. Homeowners accessed $271 million of their equity during that period, with 80–85% of these borrowers taking a lump sum and 15–20% providing themselves with an ongoing income stream.

Among holders of reverse mortgages, 23% redraw from their available equity, with the average redraw amount being $10,500.

Lately, more borrowers are locking in fixed interest rates as protection against future rate hikes, with 31% in YTD 2007 taking this option as opposed to 25% in 2006.

Fewer than 6% of loan holders made partial repayments during those months. The average repayment amount was $4400. Between 9% and 11% of loans were fully discharged during that time for an average amount of $61,500.

The reverse mortgage market is strongest (32% of market share) in New South Wales, with 23% in Victoria and 22% in Queensland, with strong growth in South Australia.

70% of all reverse mortgages are in capital cities but that is down from 80% six months ago, with 30% of new loans in regional areas.

99% of reverse mortgages are acquired for owner-occupied dwellings, only 1% of loans taken against investment properties.

Reverse mortgage borrowers are 46% couples, 38% single females, and 16% single males. This doesn’t seem to affect whether the loan is taken as a lump sum or an income stream, nor the size of the loan. Couples tend to access less of their available equity than either single males or single females.

The average age of the existing loan holder is 74 years, as opposed to 73 years for new borrowers. Pensioners under age 65 more often prefer a lump sum settlement, while those borrowers over the age of 70 generally prefer an income stream.

The highest sums of money, averaging $65,000, are borrowed by pensioners above the age of 80. Pensioners between the ages of 65 and 80 borrow an average of less than $50,000, while those under the age of 65 average loans of $53,000.

Income streams account for 22% of loan usage. The second largest category is home improvement at 16%, travel at 9%, purchase of a car at 4%, and reinvestment at 2%. Many usages are unexplained and lumped under the category of Other, at 47%.