Reverse mortgages could be the next big opportunity for advisers

The specialty lending is growing faster in New Zealand than Australia

Reverse mortgages could be the next big opportunity for advisers

With New Zealanders struggling amid inflationary pressures, an uncertain economy and an aging population, reverse mortgages are one solution for unlocking equity amongst homeowners. It's also an opportunity for advisers. 

"New Zealand is experiencing different challenges at the moment with the economy and interest rate moving so rapidly. We're looking at ways to support our elderly clients through that change," Medina Cicak (pictured above left), chief commercial officer of Heartland Bank Australia, told New Zealand Adviser. Parent company Heartland Group owns both Heartland Bank Australia and New Zealand, each operating under a group structure.  

Reverse mortgages are a type of specialty lending that allows older (often cash-strapped) homeowners the chance to borrow money against the equity of their homes. That equity is used as a security in the loan. Interest rates are often higher than other types of loans, often north of 9%, but the borrowers are not required to pay back the loan until the last borrower leaves the property, either by way of selling the home or passing away. 

"That's the key part of the reverse mortgage," Cicak said. "It's exactly the same as a home loan, but it has no end date. And we will pay into the loan as long as the house is standing, and the lender or the owner of the house is living in it, and we will not require any repayment. It frees up living expenses."

"What we are seeing in New Zealand is more people are looking at [loan] options where there is no repayment requirement at their age. That allows them not to feel the pinch of the increase and shock decrease of interest rates," she continued.  "But also what we're seeing is an aging population, which has so many assets but no liquid funds. They've got their home, and their home is their biggest asset, and they don't have any other way to unlock the equity in their home without leaving their home. So, for us, we're able to give them the opportunity to stay in their homes, as they continue to live in a comfortable state."

This is an increasingly common problem amid New Zealand's aging population. In fact, Stats NZ, a government body, estimated that by 2028, there will be approximately 1 million people living in New Zealand that are over the age of 65. That's nearly a fifth of the population for a country with roughly 5.34 million people, according to Stats NZ's figures as of September 2024.

And as Kiwis live longer, many are faced with the prospect of depleting their superannuation funds. At the same time, tension over interest rates, higher cost of goods and a weakening New Zealand dollar all mean any money they do have likely won't go as far as they once did. With so much uncertainty in the market, it's not hard to see why the demand for reverse mortgages has grown in recent years. 

"When the cost-of-living crisis hit, a lot of people didn't have the ability to get cash, but they had a house," said Elyce Peters (pictured above right), co-founder and managing director of The Mortgage Girls brokerage in Christchurch. "So there is a place for reverse mortgages in the market: People can continue to have the lifestyle they have without losing their homes. 

"And sometimes people might not be able to sell and buy in the same neighborhood," she added. "A reverse mortgage might be a way for them to get cash." 

The opportunity for advisers

Cicak said the reverse mortgage industry is definitely growing, with an increased number of new customers inquiring about the loans in the last 12 months. 

"More customers are coming to us because they're understanding the benefits of a reverse mortgage, rather than feeling like they don't understand how they fit into the scheme of things, or of their lives," she said. 

Interestingly, even though Australia's population is more than five times the size of New Zealand, Cicak said the market for reverse mortgages in the Kiwi Country is much larger. Reverse mortgage receivables grew 20.2%, or $179.6 million, to $1.07 billion in New Zealand during fiscal year 2024, or the year ending June 30, 2024. The same business grew in Australia for the year as well, albeit slightly less, up 19.7%.

"It is a very good market," Cicak said, referring to New Zealand. 

This has no doubt created opportunities for advisers as well. The chief commercial officer said about 50% of Heartland's business comes from advisers, while the other half through the direct channel. 

In terms of the adviser network, it's a win for everyone, Cicak said. Reverse mortgages provide capital to homeowners, and create business for lenders, but they are also avenues for advisers to build and retain relationships with their customer base over the long term.  

"There are a lot of advisers who have been in the industry for quite a long time," Cicak said. "Their customers are an aging population. Reverse mortgages are a perfect product for them to move into. It's a product that allows [advisers] to continuously service customers who are coming to an age where they may not have the income coming in, or do not have social security."

She added that brokers and advisers, in both New Zealand and Australia "are a really key part of our business. They can facilitate conversations with us by calling through to our dedicated call center, which can actually help them through the process and help them understand the process."