Table of Contents

Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Reverse mortgages in context 2
Reverse mortgages allow asset-rich but cash-poor seniors to access the equity in their home 2
Borrowers use reverse mortgages in three different ways 2
Three factors will contribute to the long-term growth of reverse mortgages 2
In Australia, reverse mortgage advances amounted to A$624m in 2006 3
In New Zealand, reverse mortgage advances amounted to NZ$96m in 2006 3
Reverse mortgage market growth has slowed down in 2007 4
Reverse mortgages are still not mainstream products and are subject to negative preconceptions 4
Reverse mortgages have some unattractive aspects for mortgage lenders and brokers 5
The Australian reverse mortgage market has become more competitive 5
Non-bank lenders have driven recent growth in the market 5
CBA holds the greatest market share of reverse mortgage advances 6
The New Zealand market has been shaken up by new entrants 6
Competition is expected to increase 6
Sentinel still holds a dominant market share of New Zealand reverse mortgage advances 7
Future trends of reverse mortgages 7
Product evolution 8
Competitive trends 8
Reverse mortgage borrower trends 9
Australian reverse mortgage advances will grow to A$1.2 billion in 2011 9
New Zealand reverse mortgage advances will reach NZ$190m in 2011 10
Table of Contents 12
Table of figures 13
Table of tables 14
Reverse Mortgages in Context 15
Reverse mortgages allow asset-rich but cash-poor seniors to access the equity in their home 15
Reverse mortgages are loans secured with property with no repayments until the borrower moves or dies 15
The no negative equity guarantee is an important feature of most reverse mortgages 16
Borrowers use reverse mortgages in three different ways 17
According to a 2006 survey, the major uses of reverse mortgage funds in New Zealand were for living expenses and home maintenance 18
There are other financial products that can also be used to release equity 18
Reverse mortgages have been available in Australia for two decades 19
Several factors have contributed to the development of reverse mortgages 19
Aging populations have expanded the customer base for reverse mortgages 20
Insufficient retirement incomes are forcing retirees to find alternative ways to fund their retirement 21
Property price growth has led to an increasing proportion of wealth held as home equity 21
Reverse mortgages still only make up a tiny fraction of lending commitments 21
In Australia, reverse mortgage advances amounted to A$624m in 2006 21
Only around 1.6% of eligible senior households in Australia currently hold a reverse mortgage 22
In New Zealand, reverse mortgage advances amounted to NZ$96m in 2006 23
Reverse mortgages have been introduced in Singapore, South Korea and India 24
Reverse mortgages were launched recently in India but have not yet seen strong uptake 24
Reverse mortgages have been offered for 10 years in Singapore 24
Reverse mortgages were introduced in South Korea in 2004 25
The growth in the Australian reverse mortgage market has slowed down in 2007 25
Recent slowing property price growth and interest rate rises has made borrowing less attractive 25
Changes to the Australian superannuation system may have stalled growth in reverse mortgages 26
Reverse mortgages are still not mainstream products and are subject to negative preconceptions 26
Taking out a reverse mortgage may affect pension entitlements 27
Other alternatives rival reverse mortgages 27
Reverse mortgages have some unattractive aspects for mortgage lenders and brokers 28
Competitive Dynamics of the Australian Reverse Mortgage Market 29
The Australian reverse mortgage market has become more competitive 29
The margins on reverse mortgages have shrunk 29
The Australian reverse mortgage market is oversaturated with lenders 29
Non-bank lenders drive the growth in the market 30
Once innovative features are now considered standard 30
Fixed rate for life loans are now commonly available 30
Flexible drawdown options are now offered by several lenders 31
Protected equity options are available from most lenders 32
Some lenders do not require the borrower to reside in the property 32
Reverse mortgages have been securitized twice in the Australian market 32
The largest reverse mortgage lender in Australia is still CBA 32
The five largest providers of reverse mortgages account for almost 80% of the market 33
Bluestone, ABN AMRO and Australian Seniors Finance achieved strong market share growth 34
Profiles of some key Australian reverse mortgage providers 36
ABN AMRO 36
ASF 38
Bluestone Equity Release 40
CBA 43
OFG 44
St.George 46
Competitive Dynamics of the New Zealand Reverse Mortgage Market 49
The New Zealand market has been shaken up by new entrants 49
New lenders have entered the New Zealand market, while one lender has exited 49
The New Zealand market is not yet as competitive as the Australian one 49
Fixed rates have been launched in the New Zealand market 50
Regulation is expected in the New Zealand intermediary market 50
Sentinel is still the dominant reverse mortgage lender in New Zealand 51
Sentinel holds a 77% share of new reverse mortgage loans but has lost share over the years 51
Profiles of some key New Zealand reverse mortgage providers 52
Bluestone NZ 52
Dorchester 54
Savings & Loans 55
Sentinel 56
Future Focus 58
The reverse mortgage product is expected to continue evolving 58
Fixed rates may become more common 58
Reverse mortgages may have insurance components added 58
Annuity type products may be introduced 59
Drawdown facilities will continue to be popular features 59
Products that cater to a younger group of seniors will increase eventually 60
The reverse mortgage market will become increasingly competitive 60
Margins will continue to be tight 60
A mature securitization market would simplify non-bank lender funding 60
Specialist brokers are set to become a more important distribution channel 60
Refinancing reverse mortgages may become more common 61
Reverse mortgage borrowers are a moving target 61
Attitudes are changing but still do not favor reverse mortgages 61
The usage pattern of borrowers will continue to evolve 62
The key to the market is improving customer penetration 62
Australian reverse mortgage advances will grow to A$1.2 billion in 2011 62
In a neutral scenario, Datamonitor predicts reverse mortgage advances to reach A$1.2 billion in 2011 62
A pessimistic scenario sees lower consumer acceptance 63
An optimistic scenario would entail strong growth in 2008 64
New Zealand reverse mortgage advances will reach NZ$190m in 2011 64
In a neutral scenario, Datamonitor predicts reverse mortgage advances to reach NZ$190m in 2011 64
In a pessimistic scenario growth will be slow for the next two years 65
In an optimistic scenario competition spurs growth 65
APPENDIX 66
Data tables 66
Definitions 71
Cash rate target 71
Comparison rate 71
Current rate 71
Home equity 71
Lending commitments 71
Non-bank lender 71
Methodology 71
Forecasting methodology 71
Further reading 71
Ask the analyst 72
Datamonitor consulting 72
Disclaimer 72
List of Tables
Table 1: Current providers of reverse mortgages in Australia, 2007 33
Table 2: ABN AMRO offers a maximum LVR of 15% to 60 year old borrowers in Australia, 2007 36
Table 3: Comparison rates for different ABN AMRO interest rate options, 2007 37
Table 4: Maximum LVRs offered by ASF, 2007 (%) 38
Table 5: Comparison rate table for different ASF interest rate options, 2007 39
Table 6: Bluestone offers a 45% LVR for seniors aged 85 years old, 2007 41
Table 7: Comparison rates for different Bluestone products, 2007 42
Table 8: CBA schedule of maximum LVRs and loan amounts, 2007 43
Table 9: Comparison rate schedule for the CBA Equity Unlock Loan for Seniors, 2007 44
Table 10: Maximum LVRs offered by OFG, 2007 45
Table 11: Comparison rate table for OFG reverse mortgages, 2007 46
Table 12: St.George offers very conservative LVRs, 2007 47
Table 13: Comparison rate schedule for two St.George reverse mortgage products, 2007 48
Table 14: Maximum LVRs offered by Bluestone NZ, 2007 53
Table 15: Rate options available for different Bluestone products in New Zealand, 2007 54
Table 16: Projected maximum LVRs to be offered by Dorchester, 2007 55
Table 17: Maximum LVRs offered by Savings & Loans, 2007 56
Table 18: Maximum LVRs offered by Sentinel, 2007 57
Table 19: Uses of reverse mortgage funds in New Zealand, July 2006 66
Table 20: Forecasted population age distribution in Australia, 1996-2026 66
Table 21: Reverse mortgage loan advances in Australia, 2003-07 (A$m) 67
Table 22: Reverse mortgage loan advances in New Zealand, 2003-07 (NZ$m) 67
Table 23: The proportion of fixed and variable rate new reverse mortgage lending in Australia, 2004-07 67
Table 24: Competitor market shares of reverse mortgage advances in Australia, 2005-07 68
Table 25: Competitor market shares of reverse mortgage advances in New Zealand, October 2007 68
Table 26: Competitor market shares of reverse mortgage advances in New Zealand, 2005-06 69
Table 27: Example of how a reverse mortgage works 69
Table 28: Forecasts of Australian reverse mortgage advances, 2003-11 (A$m) 70
Table 29: Forecasts of New Zealand reverse mortgage advances, 2003-11 (NZ$m) 70
List of Figures
Figure 1: A$624m was advanced on reverse mortgages in Australia in 2006 3
Figure 2: In 2006, reverse mortgage lending settlements grew to NZ$96m in New Zealand 4
Figure 3: Competitor market share of new reverse mortgage advances in Australia, October 2007 6
Figure 4: Competitor market shares of new reverse mortgages in New Zealand, October 2007 7
Figure 5: Datamonitor's neutral scenario predicts that Australian new reverse mortgage advances will reach A$1.2 billion in 2011 10
Figure 6: Datamonitor's neutral scenario predicts that New Zealand reverse mortgage advances will reach NZ$190m in 2011 11
Figure 7: How a typical reverse mortgage works 16
Figure 8: Many New Zealand borrowers use reverse mortgage funds for living expenses, 2006 18
Figure 9: In 2026, an estimated 20.7% of the Australian population will be 65 years old or over 20
Figure 10: A$624m was advanced on reverse mortgages in Australia in 2006 22
Figure 11: In 2006, reverse mortgage lending settlements grew to NZ$96m in New Zealand 23
Figure 12: The proportion of fixed rate reverse mortgage lending has increased, 2004-06 31
Figure 13: Competitor market share of new reverse mortgage advances in Australia, October 2007 34
Figure 14: Competitor market shares of new reverse mortgage advances over time, 2005-07 35
Figure 15: Competitor market shares of new reverse mortgages in New Zealand, October 2007 51
Figure 16: Market shares of new reverse mortgages in New Zealand, 2005-06 52
Figure 17: Datamonitor predicts Australian new reverse mortgage advances to reach A$1.2 billion in 2011 63
Figure 18: Datamonitor predicts New Zealand reverse mortgage advances to reach NZ$190m in 2011 64