Although Potential is Excessive, Reverse Mortgage Penetration Stays Low in Australia
While the American reverse mortgage industry has looked at models of similar industries in other countries, at least one other country that appears to be leaning more towards the product category is facing a problem familiar to American reverse mortgage professionals should: low interest rates of penetration of the mortgage market.
In Australia, where reverse mortgages have increased five-fold since the government’s Pension Loans Scheme (PLS) collected data in the 2018-2019 fiscal year, the addressable market remains well below that of the traditional mortgage business that is present in the country, and itself then the actual penetration rate remains very low. This emerges from a panel discussion on retirement income hosted by the Australian reverse mortgage company Household Capital, as reported by the Australian mortgage news agency MortgageBusiness.com.au.
“We estimate that the currently outstanding market for reverse mortgage lending from commercial providers and without the pension loan system is only around 3.6 billion US dollars,” said Deloitte actuary and partner James Hickey on the panel. “We are currently assuming that the market has really only penetrated about 1% to maybe even 1.5% of the potential addressable market that we just discussed.”
Hickey estimates that there is currently about $ 1 trillion tied up in the homes of Australian retirees, with about $ 300 billion potentially available for reverse mortgage release of the reverse mortgage product across Australia, he said.
“Even if it got into the area where the UK and US use around 5% or more of retirees who use the product, you could see a three to five fold increase at current market sizes of $ 3.5 Billions to $ 10 to $ 15 billion if it hits the same level among retirees.
About half of Australia’s collective wealth – estimated at around 55% – is tied up in housing, panelists said, which would target older populations who might benefit from using a reverse mortgage, Hickey said.
According to Tim Lawless, Research Director of CoreLogic, the rate of house price increases observed across the country is taken into account.
“We’re seeing property prices rise 11 times faster than wages, which means that more and more younger people are simply not getting a foothold in the housing market by either paying a down payment or financing their transaction costs,” Lawless explains. “The two key aspects are likely when you see more capital pouring into the economy. even with lots of incentives from the government. And second, of course, there is also a consumption advantage with more spending. “
Read the report at MortgageBusiness.com.au.