Print

Reverse mortgages in retreat down under

Catherine Deshayes

The reverse-mortgage market is in full retreat in Australia, with the fourth lender this year announcing it is pulling back.

Reverse mortgages have long been touted as the solution for funding retirement for senior citizens who are asset rich but cash poor. Especially popular in Australia and New Zealand, reverse mortgages allow borrowers to cash in on their home.

They establish a loan facility and then draw down the amount in a series of withdrawals over a period of time.

Typically borrowers are protected from negative equity and are guaranteed their home until death or until they choose to sell. Borrowers can arrange a series of lump sum drawdowns, or a regular income stream.

But, as interest rates have risen, the profit margins have decreased, and reverse mortgage holders can find this especially difficult as their planned income stream is interrupted.

Australian based Over Fifty Group announced last month it had suspended reverse-mortgage lending. It has more than £100 million in reverse mortgages on its books and says it will continue servicing existing customers. Earlier this year Sydney based Macquarie Bank also withdrew its reverse mortgage from the market.

Australian Seniors Finance has limited its distribution to credit union partner channels. Bluestone took similar action, cutting off the broker channel and limiting distribution to its partners Westpac (in New Zealand only) and credit unions.

So now there are more limited options for people considering a reverse mortgage and greater risk that the company that holds their reverse mortgage may not meet its obligations.

However, experts say that is seems unlikely that the reverse mortgage market will disappear entirely. ABN Amro has released a new product which allows reverse mortgages secured against rental properties and Suncorp had a successful launch of a reverse mortgage product last November.

ABN Amro's Director of Reverse Mortgages, Martin Lynch says, "The market has changed. Because of rising interest rates, the lifestyle borrowers have disappeared.

"These are the people who don't need the money to buy a new car or repair the roof but would like some extra money for travel or to improve their quality of life in retirement in other ways," Mr Lynch added.

To browse properties for sale in Australia, log onto www.themovechannel.com/property/Australia/