Knocking on baby-boomer doors

Australian reverse mortgage provider Bluestone Equity Release is launching in New Zealand, beginning with a roadshow this weekthat includes a presentation to the Retirement Commissioner.

The new entrant, backed by the Bluestone Group, is likely to significantly ramp-up the market for reverse mortgages here. In Australia, 25 providers write around $1 billion in new loans each year, but so far in New Zealand two or three significant players provide around $100m worth of loans annually.

New Zealand's asset-rich but cash-poor retiring baby boomers are likely to be ripe for the picking. With the enduring New Zealand fascination for property investment, many will have made little provision for retirement other than the equity in their homes.

Bluestone wasn't talking last week ahead of its roadshow, but its competitors are watching with interest. Sentinel currently has around 90 per cent of the New Zealand equity release market.

Managing director Richard Coon is welcoming Bluestone, and says other providers will follow suit: "I would see having a number of new competitors come in as probably doubling our market size fairly rapidly, if we look at the Australian example."

He says a recent Roundtree Foundation survey of 2000 people in Britain aged 45-80 showed over 50 per cent plan to release equity from their homes in retirement.

He says Sentinel makes a more conservative estimate of 20 per cent for New Zealand, but given that under one per cent of Kiwi retirees currently have reverse mortgages, there is plenty of room for growth.

Dorchester Group chief executive Andrew Walker says its equity release book has grown quickly since it relaunched its product, the RAM Ultimate, which has add-on features such as life insurance, funeral benefits and a choice of either lump sum payments or a regular annuity, and is experiencing 20-30 per cent annual growth.

He says he's not surprised the Aussies are crossing the Tasman. It is "only a matter of time" before the mainstream banks start providing reverse mortgages. Banks such as CBA, St George and Macquarie are in the market in Australia.

"The product up until now has been niche, it's probably moving from niche to mainstream. In fact I would argue that it's almost there now."

Financial planners are cautious about releasing equity from your home to fund your retirement. "We would consider it an option of last resort, if people have absolutely nothing left," says Mike Staal, joint managing director of New Zealand Financial Planning Company.

He says if the money is going into consumables such as holidays - and many of the schemes are promoted this way - retirees may find large chunks of their homes are eaten up, leaving them little to support themselves for the rest of their lives. "Unless they've really gone through some sort of serious counselling in retirement planning, spending on a holiday could be an awful outcome."

He says one advantage to more competition may be cheaper interest rates. "Some of the pricing at this stage, in our opinion, would seem rather expensive still."

Coon says Sentinel offers a floating rate of 10.75 per cent. Walker says the RAM Ultimate offers a 9.75 per cent rate. "I think that's pretty competitive, frankly."

Coon says in Australia, Bluestone offers fixed interest equity release products but in order to to afford the rate, the provider charges severe penalty fees if the loan is repaid early. He says around 5 per cent of Sentinel customers repay their loans before the end of their lives, often downsizing to a smaller home to release funds.

- HERALD ON SUNDAY