Growth in new sales of reverse mortgages is slowing, as the industry feels the effect of the credit crunch, according to a study by global consultancy Deloitte and commissioned by non-profit group SEQUAL (Senior Australians Equity Release Association of Lenders).
Although the amount of loans outstanding grew 34% to $2 billion in the year to 31 December 2007, new sales volumes were $466 million for 2007, 10% lower than in 2006. The slowdown happened in the last half of last year.
In the first half, new sales totalled $271 million then fell to $195 million in the second half of 2007.
Executive director of SEQUAL, Kieren Dell, says: “All lenders, both bank and non-bank, in the reverse mortgage market raise their funds to varying degrees via third party wholesale or institutional investors.”
The study found the number of loans outstanding was 33,741 at December 2007, double the amount from two years earlier. The average size of the loan had grown from $54,219 in December 2006 to $60,000 a year later.
The average age of new borrowers is 72, according to the study.
Reverse mortgages are pitched toward elderly citizens who borrow against the value of their home, with repayments deferred. The loans are taken out as lump sums in 90% of cases and are commonly used for home improvements and living costs.
ASIC raised concerns last year that elderly citizens did not always possess the financial literacy to understand more complex debt products. The regulator’s website includes a reverse mortgage calculator and tips.