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Heartland keen to beef up profitable $1 bln reverse mortgage book

Wednesday 21st February 2018

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Heartland Bank says it would be happy to grow the size of its $1 billion reverse mortgage loan book after the business delivered "strong" earnings, especially in Australia. 

The Auckland-based bank, formed through the merger of Marac Finance with the Canterbury and Southern Cross building societies, got into home-equity release in 2014 when it bought Seniors Money International for $87 million, acquiring a $760 million loan book. 

At the time, Heartland said the deal would give the lender access to an expanding 65-plus age demographic keen on tapping the majority of their wealth tied up in residential property, something chief executive Jeff Greenslade says is still happening today. That demographic is "asset rich and income poor" and typically wants to stay in their own home, Greenslade said. 

"We were attracted to that story and it's certainly coming through," Greenslade told BusinessDesk. "It's been rewarding - there are a lot of really good stories coming out of Australia and New Zealand, particularly New Zealand where we get customers saying 'I never knew you could do this and that's exactly what I wanted'."

The bank's reverse mortgage customers are typically in their 60s to early 70s, putting them on the continuum of retirement, with village residents usually in their mid-to-late 70s, Greenslade said. About 70 percent of their customers are mobile and will usually move into smaller accommodation, meaning the product facilitates "staged retirement rather than necessarily the end solution." 

The opportunity is big. Reserve Bank figures show housing and land value equated to $773 billion as at June 30, more than half the nation's $1,386 billion net wealth. 

Heartland's reverse mortgage loan book has grown to $1.03 billion, of which $598 million is in Australia and $430 million in New Zealand, and was a standout in the latest first-half result, with a 26 percent gain in net operating income to $18 million in the six months ended Dec. 31, outpacing a 10 percent gain in the bank's household division to $50.3 million. 

Greenslade said the bank sees "definite potential" expanding the book as a percentage of Heartland's total book, with net receivables sitting at $3.78 billion. 

"I'd be very comfortable with that. It's a very diverse risk by geography and particularly with the way reverse mortgages work, unlike normal mortgages, if you've got a residential mortgage book you're exposed to the property market every day," he said. "We're only exposed to cohort maturing, which is maybe a tenth of the book as opposed to the total market."

Heartland dominates the reverse mortgage market in New Zealand, and while it has more competitors in the more mature Australian market, it grabbed about 60 percent of total sector growth, which deputy chief executive Chris Flood attributes to the lender's use of brokers across the Tasman. 

"What we've done since we owned the business, and which is not something the previous owners did, is focus on the broker market," Flood said "We now have accredited 330 brokers around Australia to sell reverse mortgage product. That's driven a lot of the growth." 

A further 20-to-25 percent of new business comes online, which Flood says is due to the more mature market and greater knowledge. 


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