Reverse mortgages provide a way for senior citizens to tap into the equity of their fully owned homes by taking out a loan secured against their property. No repayments are required until the borrower moves out or dies. Reverse mortgages were launched in Australia in 1986, but it is only in the last few years that the market has achieved any volumes to speak of. According to a Trowbridge Deloitte report, outstanding reverse mortgages amounted to A$848 million in 2005, and soared to A$1.5 billion in 2006, representing an 80% increase.
The market potential for reverse mortgages is huge. Longer life expectancy and lower fertility rates have led to an aging Australian population, which is often financially under prepared for retirement. At the same time, the strong property market has left many senior Australians with significant wealth tied up in a home they may not wish to leave.
Despite the last few years of promising growth and an increasing number of lenders offering this product, growth in the reverse mortgage market has stagnated in 2007. In the six months to June 2007, reverse mortgage loan settlements reached A$271 million, which is roughly the same amount that was settled in the preceding six months. Interest rate rises and stagnant property prices are the most likely explanations for the lackluster growth.
The main challenge for the reverse mortgage market will be combating the negative preconceptions that abound. Moreover, the target group for this product is often perceived as vulnerable and risk-averse, which makes selling the product more difficult. However, given the underlying fundamentals of an aging population not adequately prepared for retirement, the reverse mortgage market is expected to eventually take off. 'End Intelliext
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