Though Potential is High, Reverse Mortgage Penetration Remains Low in Australia

While the American reverse mortgage industry has looked at models established by similar industries in other nations, at least one other country that has appeared to more strongly lean into the product category is facing a problem that should sound familiar to American reverse mortgage professionals: low rates of mortgage market penetration.

In Australia, where reverse mortgages have grown by five times since the government’s Pension Loans Scheme (PLS) recorded data in the 2018-2019 fiscal year, the addressable market remains far lower than the traditional mortgage business present within the country and even then, the actual penetration rate remains very low. This is according to a panel discussion on retirement income hosted by Australian reverse mortgage provider Household Capital, as reported by Australian mortgage news outlet

“We estimate that the current outstanding reverse mortgage market of commercial providers and excluding the pension loan scheme is only around $3.6 billion,” said Deloitte actuary and partner James Hickey on the panel. “We consider at the moment that the market has really only penetrated around 1 to maybe even up to 1.5% of the potential addressable market that we just discussed.”

Hickey estimates that roughly $1 trillion AUD is currently tied up in the homes of Australian pensioners, with around $300 billion being potentially accessible for release through a reverse mortgage, the bottom line is not the current penetration rate but the potential that exists to expand the presence of the reverse mortgage product across Australia, he said.

“So, certainly even if it went up to the area where the U.K. and the U.S. are around 5% or more of the retirees using the product, then you could see a three-to-fivefold increase in with the current market sizes of $3.5 billion well up to a $10-$15 billion, if it got to the same level of uptake amongst retirees.”

Slightly half of collective wealth in Australia — estimated at roughly 55% — is tied up in housing, the panelists explained, which would be skewed toward older demographics who would potentially benefit from the use of a reverse mortgage, Hickey said.

This is before taking into account the rate of home price appreciation being observed across the country, according to CoreLogic research director Tim Lawless.

“We’re seeing housing prices rising more than 11 times faster than wages, which means more and more younger people simply can’t get their foot in the door of the housing market by either raising a deposit or funding their transactional costs,” Lawless explained. “So probably the two key aspects are if you are starting to see more capital coming into the economy, two really good examples of how it could be used would be helping younger people get into the marketplace because they’re really struggling to do so, even with a lot of incentives from the government. And secondly, obviously there’s a consumption benefit as well, with more spending.”

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