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Leading reverse-mortgage provider Sentinel is reviewing its funding arrangements and laying off staff as conditions in the property and lending markets deteriorate.
Chief executive Vaughan Underwood said various factors - such as falling property values, high interest rates, retail banks moving into home equity release, and its own dominant position in the market - meant Sentinel was in "a lower growth environment going forward".
The lender was shedding around 10 sales jobs, and working with its lending partner Commonwealth Bank of Australia to act more "prudently".
It had planned to raise more funds by securitising its loans, but because of the credit crunch that was no longer cost-effective.
Sentinel's variable interest rate for a reverse mortgage was 11.95 per cent but was set to rise shortly to reflect the increased cost of funds, Underwood said.
Some of the changes would have happened anyway, as Sentinel had just under 80 per cent of the New Zealand home equity release market. "That's not a defensible number."
He said there had been a drop-off in demand for reverse mortgages but it hadn't been dramatic, because people generally only took them out when they really needed them - for example, to fund an operation.
Market penetration was still very low - under 2 per cent of over-65-year-olds who own their own homes have used equity release products - and New Zealand's record of low savings and high home ownership rates bode well for the industry's future. "We think it will comfortably get to 10 per cent at some point in the next five to 10 years."
Dorchester Life chief executive Henry Lynch confirmed the market had slowed down in the past six months, but said the lender was still getting good levels of inquiries about equity release.
Bluestone, which recently pulled out of the home lending market citing the difficulties in accessing funding, said home equity release was now its core business in this country.
Chief executive Peter McGuinness said it was new to the Kiwi equity release market and had approached it cautiously, so was still seeing growth.
McGuinness said after the rash of finance company collapses, Bluestone had spotted a new business opportunity. It was offering what it termed "special servicing" of loan books to receivers and trustees.
He said when a lender got into distress or went into receivership there was an added risk of its loans getting into arrears. "The first thing that happens is customers stop paying ... They think, 'why bother paying?"'
EQUITY RELEASE
* Home equity release products allow a person over 60 to borrow against the capital in their house, paying it back when they die or sell the property.
* Reverse mortgages are the most common form of equity release.
* Interest rates are high - currently around 11.95 per cent - and mean the loan can compound over years to use up all the equity in the home.
* Homeowners rely on the value of their property increasing to offset some of the cost of the loan.
