Reverse mortgage market tipped to grow
Australian Reverse Mortgages
An ageing Australian population and a widening retirement savings gap are set to give rise to a robust reverse mortgage industry, analysts say.
But the product needed a significant public perceptions makeover if financial planners were to broaden the appeal of reverse mortgages, they said.
Reverse mortgages enable homeowners - particularly retirees - to borrow money based on equity in their homes but do not require repayments during the term of the loan.
The loan is instead repaid when the borrower sells the property, moves into care or dies.
A report from market analyst Datamonitor said investment and demographic trends would give strength to reverse mortgages in the near future.
The equity on houses owned by individuals in Australia over 60-years-of-age accounted for at least $330 billion while shifting investment priorities meant retirees were less focused on passing the total value of their home on to their children.
The report found more than 5,000 reverse mortgages were advanced in Australia last year, with St George and Commonwealth Banks accounting for more than 60 per cent of the market.
This was despite the product being offered by at least 10 providers nationally.
In 2004, the average amount advanced per loan was approximately $50,000
However, Datamonitor financial services analyst Alex Boorman said most lenders were yet to realise the potential of the product and that consumer perceptions of the reverse mortgages remained largely negative.
"There is considerable untapped potential in the reverse mortgage market in both Australia and New Zealand if products can be made to appeal to a wider section of the population," Mr Boorman said.
"To achieve this providers must market their products more actively and must also attempt to change consumer perceptions.
"Once consumer perceptions have been changed, far more optimistic market growth can be predicted."
The report found traditional perceptions of reverse mortgages viewed the product as a last resort to be taken out when applicants faced serious financial need.
This stereotype had limited the market's growth by making reverse mortgages a negative product purchase rather than a positive one, Datamonitor said.
Mr Boorman said providers needed to work harder at putting the product on the radar.
"In so doing they will cast reverse mortgages in a more positive light among consumers who will be happier to talk about the product with their neighbours, friends and children," he said.
Source: 2005 AAP
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