Wednesday, 14 Mar 2007 11:25AM
Shared equity lenders are preparing for a turf war with reverse mortgage lenders for the retiree equity release market. The first non-government shared equity loan, Rismark's equity finance mortgage, is being marketed at this stage to first home buyers and families that want to trade up, but it will not be long before the product is being offered to retirees.
Rismark International managing director Christopher Joye said the package being offered by Adelaide Bank was not targeted at retirees but future product releases would be.
"We think shared equity will compete very strongly with reverse mortgages," Joye said.
"It is a more flexible product. There are no age-based limits. And we would argue the risk to the borrower is much lower.
"A retiree could use either product to release equity from their home. The risk they run with a reverse mortgage is that they end up with no residual equity in their home. With our product the borrower will never owe more than 40 per cent of the value of the property. Retirees are risk averse. Why would they take the risk of being left with nothing if they had an alternative?"
Greenway Capital, a start-up equity mortgage specialist that plans to launch an equity mortgage by mid year, has said that it will target the baby boomer and retiree market.
Greenway chief executive Peter Martin said yesterday that his group's product would be a "pure" equity mortgage (not linked to a conventional mortgage) that would offer up to half of the value of the home.
Martin said Greenway would market to home buyers but also to home owners who want to access equity in their home.
At stake is a market that is small but growing very fast. According to a report released last October by consulting group Trowbridge Deloitte, loan balances grew from $459 million in December 2004 to $848 million a year later, an increase of 85 per cent. At June 2006 balances stood at $1.1 billion.
The number of accounts increased from 9700 in 2004 to 16,600 a year later, an increase of 71 per cent. At June 30 the number of accounts stood at 20,300. Trowbridge Deloitte said the average borrower is 74 years old and borrows an average of $53,500.
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