It has been identified as a growth market, but does that mean you should get involved? Darren Moffat lays out the pros and cons.
Recent reports have identified reverse mortgages as a growth market, but many brokers are still reluctant to get involved. We talk to Seniors First managing director Darren Moffat about the pros and cons.
According to the latest Deloitte Actuaries and Consultants’ study, the reverse mortgages market has grown more than 7 per cent since 2012, and is currently worth more than $3.5bn.
In the current environment of low credit growth, says Moffat, this figure is only set to rise.
“The seniors equity release market is a massive opportunity for growth and soon even the banks will get it and they will realise that they’re not doing 10 per cent annual credit growth in home loans anymore but an extra 200,000 people turn 65 each year.”
Despite this, many brokers are reluctant to branch out into the reverse mortgages market, says Moffat, mostly due to perceived lower commissions and a higher compliance burden.
“It’s an acquired taste,” says Moffat. "Yes there is a fair bit of compliance around it, and rightly so, and you’re not going to make as much money in the short-term as you would doing a normal loan… so if your goal is to make as much money as quickly as possible you probably wouldn’t do it.”
On the plus-side, however, brokers that take up reverse mortgages will end up with a long-lasting and high-growth trail book.
Moffat also believes this type of work is highly rewarding on a personal level.
“You’re doing some really positive work in the community. A lot of people I deal with, they really need help and I often get great personal benefit from the transaction. So if brokers are looking for a little bit more meaning in their work I think this is a really good market to work in.”
The reverse mortgage sector takes a broker with a certain personality type, says Moffat, and someone that has a rapport with the elderly community.
“They’re at a different stage of life so you’ve got to understand their needs; you’ve got to be empathic and you’ve got to be a bit patient. Sometimes these transactions will take a little while to get over the line so a lot of brokers it just won’t suit.”
Brokers that fall into the latter category would be best to outsource, says Moffat, but those that do think they fit the personality type have a few things to consider before they make the move.
Reverse mortgages can work well as an additional revenue stream to an existing mortgage business, but brokers should employ specialist marketing to get the best results, says Moffat.
“Don’t expect that you can just go out to your local seniors market with your current branding, it probably won’t work. Preferably you would have something with the word senior or retirees in the title for it to start hitting the market. It shows that part of the market that you’re talking to them and that you’re serious about their needs.”
Other things that brokers should consider when entering the seniors equity market is that borrowers may not always have sufficient mental capacity to complete the loan transaction themselves. This means that brokers need to understand power of attorney, and to be mindful of coercion from other family members.
“You’ve just got to keep an eye on it. The main thing is that if, as a broker, your heart’s in the right place and you’re trying to help people and you make sure that the borrower is well-informed and comfortable during the transaction, it’s pretty hard to get in trouble."
Currently a scarcity of lenders offering reverse mortgages is also a deterrent to many brokers looking at entering the market, but Moffat says that it likely to change.
“I think that it’s very likely in the next three years or so you will see an explosion of lenders in this market. A lot of banks that are not in it will get into this market and you’ll see other lenders come back.”
Now is the ideal opportunity for brokers to get a head start before the boom, he says.
“It’s essentially a low-point in the market. There’s not a lot of people doing it but the demand is there and growing. Once the lenders do come back in you will see lots of other brokers coming into the market, so if you get in now you will get a head-start and it could be a great opportunity.”
Do you do sell reverse mortgages? Are you considering it? Share your thoughts below.
