The reverse mortgage market has continued its breakneck growth in Australia as a growing number of cash-strapped seniors begin to warm up to the controversial home loan product.
Reverse mortgages, which allow borrowers aged 55 years or more to borrow cash against the value of their home, have been mostly used for short-term purposes, such as to fund accommodation bonds, sea or tree change trials or as bridging finance, the study found.
According to the latest SEQUAL/Trowbridge Deloitte Reverse Mortgage Study, the reverse mortgage market has jumped by $274m in the six months ending June - a 24% increase to more than $1.8bn. Over the past 12 months, the market expanded by 67%.
Kieren Dell, executive director of SEQUAL, said the market's explosive growth is partly due to its increasing popularity as a retirement financial planning tool. "This growth reflects the increasing role that reverse mortgages are playing for senior Australians," he said.
James Hickey, partner with Trowbridge Deloitte, noted that on average 10% pa of all reverse mortgages will be repaid by the borrowers in full. "This indicates that these products don't have to be 'set and forget', where they're left to accumulate interest for the life of the borrower. They can be repaid, and a proportion of borrowers are doing just that. They [borrowers] are enjoying the benefits of accessing their funds now, and when the time suits them in the future, they're then voluntarily extinguishing the debt."
Despite this explosive growth, the reverse mortgage remained one of most controversial mortgage products in the market. This is mostly due to the nasty experience in the UK in the 1990s when many borrowers lost their homes during a sharp downturn in the housing market.
For an in-depth report on how to choose the right reverse mortgage and the traps to avoid, read the latest issue of Your Mortgage magazine, on sale now.