Reverse mortgage market looking at record year

Skyrocketing inflation is spurring seniors to look into using home equity to meet expenses

Reverse mortgage market looking at record year

Skyrocketing inflation and high home valuations will push the reverse mortgage market to record levels this year, the head of Household Capital said.

Household Capital chief executive Joshua Funder told The Australian that between $760 million and $1 billion in reverse mortgage loans were expected to be written this financial year, blowing past the $600 million to $700 million written in 2007, prior to the global financial crisis.

Funder said rising costs were spurring more and more retirees who own their homes to look into home equity financing to pay bills, fund renovations or holidays, purchase cars or help family members with deposits for their own mortgages.

“This year will see the biggest year of home equity access for retirees in Australian history,” Funder said. “It is growing at about 40% a year. It is probably the only area of the mortgage market which is growing strongly at the moment.”

While house prices have fallen in recent months, Funder said many retirees had equity in their homes worth several times the amount they had in their superannuation. With recent spikes in the cost-of-living, retirees were having a harder time paying their bills, he said.

Funder’s comments came as Household Capital expanded its reach in the reverse mortgage space with the takeover of Pension Boost, a government home equity specialist. The deal will strengthen Household Capital’s position as the largest player in the sector, The Australian reported.

Pension Boost, founded in 2019, helps people access the federal government’s Home Equity Access Scheme (HEAS). Pension Boost originates about 30% of applicants for the program, which was retooled by the Morrison government in 2021 to help retirees access some of the value in their home.

Funder told The Australian that the acquisition would make Household Capital the leader in the home equity retirement funding market and give customers a “one-stop shop.”

HEAS gives retirees a limited amount of funding against the security of their homes, provided strict conditions are met. Funder said that while Household Capital’s products allowed retirees to access much larger amounts, HEAS was the best choice for some borrowers.

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The reverse mortgage market was growing prior to the GFC, but stumbled amid reports of retirees borrowing more than the value of their home. Most major banks exited the market in the wake of the scandal.

However, the Australian Securities and Investments Commission now limits the amount a person can borrow, beginning with 25% for a person aged 65 and increasing with age, The Australian reported. ASIC has also imposed other restrictions on the reverse mortgage industry. Funder said the restrictions make the reverse mortgage market one of the best regulated sectors in the world.

Household Capital has an average loan-to-valuation ratio of 19%, meaning borrowers still hold 81% home equity, The Australian reported. The company has already lent more than $300 million this year.

Have you noticed an uptick in customers interested in reverse mortgages? Let us know in the comments below.