New research examining nearly two decades of reverse mortgage data shows that older New Zealanders are using these loans cautiously, despite growing financial pressures and an ageing population.
International researchers, including Professor Graham Squires from Te Whare Wānaka o Aoraki Lincoln University, analysed loan data from one of the country’s major providers from 2004 to 2021 to better understand borrower behaviour and the factors influencing loan eligibility.
The findings were published in Applied Economics in the article The reverse mortgage market in New Zealand: key drivers of loan determination.
Professor Squires said: “This research has not been conducted in New Zealand before, and it is timely given the trajectory of our ageing population and the financial pressures retirees face.”
The study highlights the emerging role reverse mortgages may play as younger generations enter retirement with less housing-derived wealth than baby boomers, who benefited from decades of property appreciation.
Squires said: “While the baby boomer generation has accumulated wealth through property, younger generations are facing greater challenges entering the housing market.
As a result, this may see them relying more on pensions and other financial tools to support them in retirement.”
Reverse mortgages remain a niche option in the local market, currently offered only by Heartland Bank and Southland Building Society, but the researchers expect demand for alternative financial instruments to grow.
Squires noted the sensitivities around borrowing later in life and the implications for intergenerational wealth, saying: “Reverse mortgages can be useful, but they come with sensitivities around debt and intergenerational wealth.
“If someone remortgages their house later in life, this can affect the level of debt a person holds, potentially passing it on to their children.
“Our research aimed to provide an objective understanding of how these loans are actually used.”
The data shows the average loan amount is $49,267, representing less than seven percent of a property’s value, far below the maximum loan-to-value ratio of 35.34%.
Around 95% of loans were voluntarily repaid before the borrower’s death, and most were settled within six years, indicating that borrowers use the loans as short-term financial support.
The research also found that the typical applicant is a 72-year-old single woman, and that older applicants aged 75 and above tend to borrow less than those aged 55 to 74.
This may reflect their concern about taking on additional debt in later life. The study confirmed that a home’s market value is the strongest predictor of the loan principal, while interest rates influence borrowing decisions more than personal characteristics such as age or marital status.
The researchers also found that more generous loan-to-value settings do not lead to higher borrowing, suggesting applicants make conservative decisions regardless of limits.
Compared with Australians, who often borrow close to the maximum permitted amount, New Zealanders appear more cautious.
Squires said: “Here in New Zealand, the market is highly regulated to help protect financially vulnerable people—those who are struggling financially and repayments may be difficult to make.
“I believe this research shows that New Zealanders are sensible by not taking out large loans in their retirement years, and that appropriate safeguards are in place.
“What is vital in the future is the need for people to be financially literate, so they understand what financial options are available to them and what the most appropriate might be.”