KEY POINTS:
More mainstream banks plan to enter the growing home-equity release market in the new year, a move that is expected to give a timely boost to a relatively new part of the finance sector.
ANZ National and the Bank of New Zealand are now working on reverse-mortgage products
designed to help those customers aged over 60 classed as "asset-rich and cash poor".
They are following their rival Westpac, which launched its reverse mortgage product in April.
"We anticipate having an equity-release product in the market early in the new year for ANZ and the National Bank," says Graham Hodges, CEO, ANZ National Bank.
"New Zealand's demographic trends have created a clear need for equity-release mortgage products. While they are not suitable for everyone, properly managed they are a good option for some people," he says.
"In talking to customers we've found that demand is driven by customer need relating to their stage in life, and not necessarily by market conditions.
"This is a new area, and as New Zealand's largest bank, it's important that we set an example.
"Recent media commentary has highlighted examples of the vulnerability of the senior market and it's important that such products are responsibly marketed and delivered with the highest level of integrity."
The BNZ, which is not thought to be as advanced in its plans as ANZ National, is holding its cards closer to its chest for now. Blair Vernon, general manager of strategy and marketing, says: "It's an area we are looking at, but no decisions have been made yet."
Independent research by Datamonitor shows that the New Zealand home-equity release market is strong but has slowed slightly.
It found annual advances in the reverse mortgage, or home-equity release market, increased from $37 million in 2004 to $96 million last year, an average annual growth rate of 61.6 per cent.
There has been a fall-off this year, for which estimates put the figure at $105 million, slower by 9.4 per cent over the previous year.
Rob Dowler, executive director at Safe Home Equity Release Plans Association (Sherpa) puts this down to inter-national and local credit market conditions, higher levels of pent-up demand in the early years, and the larger base the percentage growth is now being measured from.
Total loan balances outstanding at the end of 2007 are around $350 million, showing growth of 50 per cent-plus on last year.
Westpac has been pleased with the response to its home equity release product since it launched. It is using a product tailored for the bank by Bluestone Equity Release, but marketed under the Westpac name.
"It's been very well received, we've had clients in tears,. Some of the situations we are dealing with are really dire. We are giving them opportunities to do things, touching stuff like going back and seeing the family for the last time overseas, getting that critical operation, life-changing stuff," says Tracey Berry, head of wealth management at Westpac.
"They are not borrowing to go shopping - they are borrowing because they can't afford the rates bill," she says.
ASB is yet to make a decision about reverse mortgages. It says it is still assessing the situation.
Meanwhile, it is directing well-disciplined customers to its "Orbit" revolving credit facility. Some people are choosing to trade down from the family home.
Sherpa is welcoming the growing participation in the market from some of the big banks, with Dowler saying it recognises the standing banks have in the community.
"It is logical for banks to look at this space, it's another part of their product suite as people move through their life cycle," he says.
The market won't be a huge money-spinner for the financial institutions which make their money from cross-selling - in other words selling other financial products alongside, such as insurance.
"The Australian experience would indicate the profitability [of home equity release] is a wee way down the track for providers. It's about building size, client numbers and, over time, profitability," says Dowler.
While the arrival of big, well funded competitors in your market space might be seen as a big threat, Sentinel, which is the largest player in the local reverse mortgage sector, thinks the banks moving in will be a boost to the industry.
The banks will be the biggest competition, says Sentinel CEO Vaughan Underwood.
"Most of them will get involved defensively rather than offensively," he says. In Australia CBA and St George have reverse mortgage products. "They market it quite passively. It's a small market segment for them. This is in the tens of millions, there's not a lot of cross-sell," says Underwood.
He is upbeat about the market, despite an easing in the past year.
"We had some ambitious growth targets this year, we are in front of where we expected to be." Sentinel has 6500 current loans.
Now the pent-up demand is gone, the growth is far more organic, says Underwood.
Bluestone Equity Release CEO, Peter McGuinness, says the company now has more than 500 customers in New Zealand and Australia. He says Australia is about two years ahead of the New Zealand market with more than 20 products available.
He predicts the cost of home-equity release products will come down in New Zealand as competition increases and as consumers become more discerning.
The main players have their hopes pinned on the future baby-boomer market. Henry Lynch, group general manager of DorchesterLife, the oldest player in the market, says that in its own research out of the population over 65, 14 per cent was interested in taking out a reverse mortgage.
"We have had probably the most inquiries for reverse mortgages that we have ever had. We've received 200 inquiries in the past two weeks," says Henry Lynch, group general manager.
He points out some new trends in the evolving market, taken from a recent report from Trowbridge Deloitte. Mortgage brokers have now overtaken direct sales as the largest channel for reverse mortgage products, and financial planners are also having a significant impact.
The report says that every year, an average 10 per cent of all reverse mortgages will be repaid in full.
"This is a very important figure for the industry as it indicates that these products do not have to be 'set and forget', where they are left to accumulate interest for the life of the borrower. They can be repaid, and a proportion of borrowers are doing that," says Lynch.
Financial adviser Jeff Tobin, who recommends the Sentinel equity- release product, says he has been waiting for a product such as this for years. He has previously advised people to pay off their mortgage and save for retirement simultaneously.
"You can't eat the house," he has told them. "Now people who work hard to pay off their mortgage on a well-located home have a new option. You can eat your house with home-equity release."
NZ Mortgage Brokers Association president Geoff Bawden believes reverse mortgages are becoming a more mainstream product.
"I think people are becoming more accustomed to the concept of it.
"The important thing is that it's more than just a mortgage decision.
"They want to involve the family in it, often a decision made by consensus versus by individual."
Home-equity release
* More of the mainstream banks are now getting into offering "home- equity release" products - otherwise known as "reverse mortgages".
* In most cases, reverse mortgages are only offered to those aged over 60 - or 65 - who fully own their own home.
* A loan is taken out to a percentage of the value of the home. Cash is paid out to the homeowner.
* No repayments are made during the life of the loan, although interest on the debt compounds.
* The loan does not have to be paid off until the homeowner permanently leaves his or her house - often when he or she dies or is moved into aged care.
* The title of the property stays with the homeowner.
* Most plans ensure a borrower will never have to repay more than the value of the house.
* New Zealanders have taken out $350 million of reverse mortgages.
* Three of the major players in the sector include Sentinel, Bluestone and DorchesterLife.
