Reverse mortgages surge creates broker opportunities: Heartland

The group reported a 20.7 per cent increase within the year, taking the total value to $1.54 billion, up $263.5 million.

The trend came as Australia’s ageing population is increasing, according to the latest Intergenerational Report, with people over 85 years of age, expected to triple in the next 40 years.

Amid the ageing population and cost-of-living pressures, general manager of reverse mortgages at Heartland Finance, Sharon Yardley, said customers are increasingly turning to reverse mortgages to secure funds for essential home improvements, moderate lifestyle enhancements, and improved cash flow management.

“[There are] people who are on limited incomes, don’t want to move out of their home, but they need help to consolidate debt and it helps them with ongoing income,” she said.

“They also want to age well in their place, so they want home improvements and to just enjoy their retirement with modest lifestyle spending.”

The report highlighted a surge in customers utilising reverse mortgages as supplementary income, rising from 16 per cent in FY21 to 38 per cent in FY23.

Additionally, home improvements emerged as the “most common use of reverse mortgages”, with 55 per cent utilising them for this purpose in FY23.

Furthermore, 27 per cent of new loan customers have existing mortgages being refinanced upon settlement.

In light of this robust demand, Ms Yardley encouraged brokers to familiarise themselves with reverse mortgage mechanisms in order to capitalise on this growing market.

She revealed that approximately 50 per cent of new mortgages are currently arranged through third-party channels, with prospects for growth.

Acknowledging that while some brokers are thriving others face challenges due to customer refinancing or being trapped as mortgage prisoners. As such, she emphasised that reverse mortgages can be a valuable addition to their offerings.

“Reverse mortgages are a great string to add to the bow in terms of a product to offer,” Ms Yardley said.

It can also assist those trapped in mortgages if brokers have clients aged 60 or older with relatively low loan-to-value ratios (LVR) but are encountering financial difficulties, she added.

“If the broker wants to provide a full service model to customers … that’s what the reverse mortgages are there for,” Ms Yardley said.

Given not all brokers specialise in reverse mortgages, there are accredited training programs available to provide support.

The results also noted that following consecutive cash rate hikes and successive drops in house prices, Australia’s average weighted loan-to-value ratio (LVR) rose to 21.5 per cent (up from June 2022’s 20.5 per cent).

Overall, the results showcased a 0.8 per cent rise in net profit after taxes, amounting to $95.9 million.

This takes Heartland’s market share for its reverse mortgage operations in Australia to 38.4 per cent (as of March 2023), up from the previous year’s 33.1 per cent.

Heartland eyes Australia’s banking landscape

Furthermore, the acquisition of Challenger Bank remains on the horizon, subject to approvals from the Reserve Bank of New Zealand (RBNZ) and APRA.

The lender highlighted the strategic benefits of acquiring Challenger Bank, including access to robust funding sources to facilitate growth in Australian reverse mortgages and livestock finance.

The acquisition is poised to provide a springboard for sustainable expansion of existing portfolios in Australia through access to retail deposits.

In addition, Heartland remains steadfast in its expansion efforts within Australia, which includes strengthening its existing livestock finance business (StockCo Australia) and actively exploring avenues to amplify Heartland’s ‘best or only’ strategy within the country.

[Related: Ageing population to bring new opportunities for broker, demographer says]