Reverse mortgages grow 23.2% year-on-year
Heartland Group has announced an 0.8% increase in net profit after tax over the 2023 financial year.
Releasing its full-year results on Tuesday morning, Heartland Group Holdings Limited (Heartland), which operates in Australia and New Zealand, reported net profits after tax (NPAT) of $95.9 million for the year ending June 30, 2023, an annual increase of $0.7m.
Total receivables (New Zealand) were $4.9bn, up 7.8% ($354m), and net operating income was $227m, up 1.8% ($4m).
New Zealand reverse mortgages receivables were $888.6m, up 23.2% ($167.3m) compared to FY22. Asset finance receivables were $682.8m, up 7.8% ($49.2m) and motor finance receivables were $1.57bn, up 13.5% ($186.8m).
New Zealand motor finance new business volumes increased by 11.6% from FY22, with overall growth of 13.5% which the company said was due to lower early repayments than expected.
Online home loan receivables were $313.4m, up $38.7m (14.1%). Personal lending receivables were $47.3m, down 27.3% ($17.8m), which included loans originated through Heartland Bank and legacy portfolios originated by Harmoney in New Zealand and Australia.
Strong growth across core portfolios
Heartland Bank CEO Leanne Lazarus (pictured above left) acknowledged that the environment had been challenging for customers in both New Zealand and Australia, given rising interest rates and cost of living pressures.
Despite economic challenges, the asset quality within Heartland Group has performed well across its core portfolios of motor vehicle finance, livestock finance, asset finance, and reverse mortgages, she said.
Noting growth in motor vehicle finance (13.5%), Lazarus acknowledged that the annual increase had occurred in an environment where new and used motor vehicles decreased by around 6.2%.
While online home loans growth was subdued relative to last year, Heartland Bank figures showed high retention rates of existing customers refixing their loans, she said.
“While the environment has been challenging, the demographics of our customer base and our ‘best or only’ strategy has held well for us,” Lazarus said.
Turning to growth in motor vehicle finance, Lazarus said that Heartland Bank had shifted its portfolio towards higher quality opportunities, such as franchised dealers and that it had increased the portion of new motor vehicle financing, contributing to a difference in margin. In asset finance, repricing or larger repayments on higher or riskier loans contributed to the results.
The business reduced its risk appetite on personal lending, she said. Specifically, Heartland Bank stopped lending on unsecured loans and reduced its appetite on unsecured small to medium enterprise lending, contributing to a compression earlier this year.
Demand for reverse mortgages increasing, says bank
Heartland Bank general manager reverse mortgages Keira Billot (pictured above right) said that Heartland Bank continued to see strong demand for reverse mortgages throughout the financial year, as evidenced by growth of 23.2%.
An increase in receivables of $167.3m indicated more people had drawn down on their reverse mortgage year-on-year.
Among the key drivers of growth were cost of living pressures, which includes older Kiwis on NZ Super, whose funds have been stretched further, Billot said.
“We’re seeing an increase in people accessing a reverse mortgage to support cashflow, for debt consolidation (e.g. paying off credit cards),” Billot said.
The number one reason for taking out a reverse mortgage continues to be home improvements.
“This is where people might want to make modifications to age in place, because to stay in their home, they may need to change some things or include features they’ve always wanted to enjoy in their retirement,” Billot said.
“Reverse mortgages continues to be a strong portfolio for us, and we see that continuing over the next financial year.”
Over the last decade, Heartland Bank said that it had helped over 22,000 Kiwis to enjoy a more comfortable retirement by releasing equity in their homes.
On October 20, 2022, Heartland Group signed a conditional share purchase agreement for the purchase of Australia’s Challenger Bank, which remains subject to approval from the Reserve Bank of New Zealand and the Australian Prudential Regulation Authority.
Lazarus said that Heartland Bank would continue to drive growth across its key portfolios where it was seeing strong demand, including reverse mortgages, motor finance, asset finance and livestock finance.
Heartland Group full year results snapshot
- Net profit after tax (NPAT): $95.9m, up 0.8%
- Net interest margin (NIM): 3.97%, down 8 basis points
- Gross finance receivables: $6.8bn, up 10.1%
- Underlying return on equity (ROE): 11.9%, down 68 basis points
- Impairment expense: $23.2m, up 68.1%
- Final dividend for FY23: 11.5c per share
- NZ receivables: $4.9bn, up 7.8%
- NZ household personal lending:$47.3m, down 27.3%
- NZ reverse mortgage receivables: $888.6m, up 23.2%
- NZ motor finance receivables: $1.5bn, up 13.5%
- NZ home loans: $319.6m, up 13.4%.
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