Property Finance major player in reverse mortgage market

A company controlled by collapsed finance company Property Finance was a major player in New Zealand's fledgling reverse mortgage market.

A source said that Property Finance's Lifestyle Securities had lent about $40 million in reverse mortgages.

That represented almost 30 per cent of the local market, which the source said was in dire need of Government regulation.

Brendan Gibson of Property Finance's receivers, Ferrier Hodgson, said some of Lifestyle's loans had come under his control but the bulk came had been securitised by the Guardian trust.

He said Lifestyle was more of a brand than a company.

Lifestyle's 0800 phone number was not responding, saying its message box was full.

The industry source said Lifestyle's offering had been popular.

There would be little trouble selling its loans to other lenders as they had an 11 per cent compound interest rate.

Reverse mortgages are mostly taken up by pensioners who give title to all, or part, of their home in exchange for instalment payments of cash.

He said many people who had taken up the loans run into problems when they borrow too much too soon – say 15 to 25 per cent of their equity.

With compounding interest, every three months it gets ratcheted up quickly so the standard 11 per cent rate quickly goes to 12.8 per cent in real terms.

Then because of set limits of 2 per cent on how much equity the borrower can take every two years, many find the compound interest has gobbled up that and they are allowed no more.

"Already these problems are starting to occur here and there are major rumblings at the top end in Australia.

"Any one who has borrowed too much too early is in trouble.

"They have $100,000 in their pocket and they go and blow it, and then when they want more, they can't get it, and then they are more dependent."

He said in Britain, where reverse mortgages have been going for 15 years, the government moved quickly to regulate.

"The Government here has started but they are still trying to work out what they are going to do and it hasn't gone to the minister yet.

"The level of borrowings needs to be looked at quite quickly," he said.

- NZPA