Senior citizens missing out on equity - Deloitte
The numbers of "reverse mortgages", usually taken out by older people, has declined in the past five years, a study by Deloitte shows.
A reverse mortgage is a loan where interest payments accumulate over the term of the loan and the loan and interest is repaid when the home is sold or the last holder of the loan dies.
Deloitte said New Zealand's reverse mortgage market was stagnant. It had 5338 reverse mortgages worth $444m at December last year compared to 6613 loans worth $447m five years before.
Deloitte partner, financial services, James Hickey, said New Zealand seniors were missing out in using their homes' equity to live more comfortable retirements.
Heartland Bank now has about 80 per cent of the New Zealand reverse mortgage market after buying the Australasian Home Equity Release (HER) business in April this year.
Heartland managing director Jeff Greenslade said it had about 4000 reverse equity loans in New Zealand and a similar number in Australia.
"It's a product for its time," he said
There was a generation of people over 65 who were asset-rich and income-poor. Some 80 per cent of New Zealanders over 65 had annual income around $24,000.
Interest rates on the loans were about 2 per cent higher than standard loans but the loan could never become larger than the value of the property, he said.
Heartland had started promoting the loans from May and each time it did it received about 200 inquiries, Greenslade said.
Typically retirees in their 70s took a reverse mortgage and then sold the property several years later in their early 80s when they moved to a retirement village.
About 10 per cent of the loans were repaid each year and 9 percentage points of the 10 were people moving on - downsizing or to a retirement village - and only 1 percentage point was repayment because of death.