Reverse mortgage planner market contracts - Money Management

A shrinking financial planner channel for reverse mortgages hasn't stopped the market from growing, according to Deloitte bank partner James Hickey and Senior Australian Equity Release (SEQUAL) chairman John Thomas.

The market grew 10 per cent over the 12 months to 31 December 2011, while the financial planner and broker channels decreased collectively to 26 per cent of settlements compared to approximately 50 per cent pre-GFC, according to Hickey.

He said financial planners weren't utilising reverse mortgages because the broker market hadn't been pushing the product and current lenders worked predominantly through their own channels.

Deloitte's yearly study of the Australian reverse mortgage sector to 31 December 2011 commissioned by SEQUAL showed 42,000 Australian reverse mortgage loans and $3.3 billion funds.

Hickey said the volume of new lending remained stable at 22.5 per cent over two years to the end of the study but had not reached the same levels as 2006/07 because non-bank players were unable to source attractive prices from the wholesale securitisation market.

Thomas said two bank lenders and a handful of non-bank lenders, mainly credit unions, currently offered reverse mortgages. He said five members were loaning while nine were passive members with outstanding loans, compared to 22 active members in the products' prime, he said.

Hickey said banks provided most of the $317 million settlements over the 12 months, which 94 per cent of borrowers had drawn on a "needs basis" in lump sums as access to products such as "lines of credit" pushed income out.

Although the planner channel accounted for little individually, the numbers didn't reflect brokers underwriting for products from planners' leads, they said.

Hickey said the level of tailoring in financial planners' assessment of needs explained the difference in brokers' and planners' average settlement size, which was $79,750 compared to $54,000 for direct channels.

Both said reverse mortgages deserved more merit for the benefits that drawing on home equity can provide retirees. 

Thomas said the majority of settlements were used for home improvements, which were often funding stay-at-home aged care. He said he expected usage would continue to increase alongside Australia's ageing demographic.