17 Feb 2014

Heartland to lead equity release market

7:21 am on 17 February 2014

Heartland New Zealand will claim 80 percent of the New Zealand market for equity release mortgages under the Sentinel brand once it completes the $87 million purchase of Seniors Money International.

Equity release mortgages allow people over 65, who often have most of their personal wealth tied up in their homes, to borrow money against those homes while retaining the right to continue living in them.

Such loans include a guarantee that the borrowers will never be required to repay more than the value of their homes.

Heartland chief executive Jeff Greenslade said Heartland was attracted to equity release mortgages because the firm is comfortable with the household sector, and caters to a different demographic than regular mortgages.

Mr Greenslade describes the home equity release mortgages as the financial equivalent of the retirement village industry, saying it gives the ageing population another way to manage their retirement years.

He said it is particularly relevant in New Zealand which has a growing number of people who are aged 65 and older, an age group whichh has a very high level of home ownership but a very low level of income.

He said Sentinel has a very good management team, processes and systems and underwriting standards.

But Mr Greenslade said Sentinel, along with other companies in the market, was squeezed in terms of liquidity after the global financial crisis.

He said Heartland can provide liquidity, as well as having distribution capability and it hopes to return Sentinel to the levels of growth it had prior to the crisis.

Mr Greenslade said there are no current providers of this type of mortgage that are growing.

"In Australia about $300 million of new mortgages get written every year, in New Zealand it's been very, very slow, less than $20 million of new mortgages being written and that's simply a function of the lack of cash-flow and liquidity in that market."

Mr Greenslade says they will establish Heartland in New Zealand as a sponsor of the product and put its cash-flow behind it.

Heartland says it's still finalising its 2015 forecast but, taking into account the expected contribution from the purchase, the likely result should be $42 million to $44 million.

Seniors Money will contribute $8 million to $9 million a year on a normalised basis.

International ratings agency Standard & Poor's has affirmed Heartland's BBB- credit rating, saying the assets being purchased are complementary and will have a neutral impact on the company's credit profile.