What's next for Canada's reverse mortgage market?

Statistics Canada’s newly released 2021 Canadian Housing Survey has shone a light on some of the emerging trends in the national housing market, including the revelation that monthly shelter costs rose at a quicker pace for renters than for owners between 2016 and 2021.

The median monthly shelter cost payments for owners increased by 9.7% over that period, StatCan said, compared with 17.6% for renters.

That’s a trend that has huge implications for Canadians who aspire to enter the housing market, with many now spending more money on rent that might otherwise have been used to save for a down payment.

With a growing number of would-be homebuyers now turning to the so-called “Bank of Mom and Dad” for assistance with a home purchase, that’s also had a corresponding effect on Canada’s reverse mortgage market, according to a prominent executive in that space.

“As shelter costs rise along with home prices, it’s becoming extremely difficult to enter the housing market,” Erin Wilson (pictured top), vice president at HomeEquity Bank, told Canadian Mortgage Professional. “So our clients see their kids and grandkids struggle to save money, and they’re becoming more incentivized to help them.

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“More clients are expressing interest in using the equity through their CHIP reverse mortgage to fund what we call the Bank of Mom and Dad, and it helps their kids enter the housing market.”

HomeEquity’s CHIP reverse mortgage is its best-known product, one that allows Canadians aged 55 and over to tap into up to 55% of their home’s value. Over the past year, the share of clients who say they’re using the funds for a reason such as gifting money to their children to buy a property has risen by about 20%, according to Wilson.

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Despite falling this year, home prices have grown precipitously in recent times; even before the pandemic housing market boom, the net worth of homeowners had surged from $323,700 in 1999 to $685,400 by 2019, according to the Survey of Financial Security.

Between 2016 and 2021, the average expected values of homes in Ontario spiked by over 59%, with British Columbia posting a 36.3% increase and Quebec seeing values rise by 29.8%.

Even despite the declining values of this year, that appreciation is substantial – and has had a big impact on the reverse mortgage market, Wilson said.

“We know that the value of homes in Canada has risen [significantly] over the past five years, and that has provided Canadian homeowners with significant wealth gains,” she said. “Accessing their home equity through [a reverse mortgage] can become a key financial solution that gives them choice, flexibility, and helps clients live a better retirement.”

The company’s internal research also indicates that up to 90% of Canadians want to stay in their home as they age in the comfort of their own community, Wilson said, with its reverse mortgage product designed with those individuals in mind.

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That trend could be strengthened by those falling prices, meaning it’s no longer as lucrative to sell a home as before.

“The cost-of-living has increased, but now home prices are falling. So, because of market volatility, it might not be a good time to sell investments. It might not be a good time to sell your home,” she said.

“But for our partners, they could still help their clients with a better retirement by tapping into the appreciation of their home equity with a reverse mortgage – [converting] part of the homeowner’s equity into cash without requiring them to move or sell.”

That cost-of-living crisis, which has seen consumer price growth accelerate amid ballooning inflation, has also contributed to fear and anxiety over lack of cash flow – something Wilson said the reverse mortgage can also address.

She described the CHIP reverse mortgage as a product aimed at providing an opportunity “to unlock some of the [home] value and redirect that money towards the client’s lifestyle.

“They can take the money in a lump sum to cover a large expense, or they will have it laid out in monthly increments to help cover living expenses.”

Overall, StatCan’s report revealed that the homeownership rate in Canada has fallen over the past decade, declining from 69% in 2011 to 66.5% last year.