Heartland launches a bridging loan to finance retirement village purchases

The loan can be on any stand-alone house worth at least $250,000 and Heartland will lend up to 50% of the house’s value for up to three years.

“It’s a lot like a reverse mortgage but it’s not a reverse mortgage for two very good reasons,” says Heartland group chief strategy officer Michael Jonas.

It isn’t designed to suit the financial needs for someone who wants to remain living in their home and it has a maximum time-frame of three years.

Jonas says Heartland had deliberated about providing a longer time frame but that would have meant lowering the maximum loan-to-valuation ratio.

The time limit “enables us to leverage up the LVR so we can lend more on the existing home. You can only use this if you’re moving into a retirement village.”

Residents of most retirement villages buy an occupation right agreement (ORA) which is a licence to occupy a unit and doesn’t confer ownership.
When a resident dies or moves out of the unit, the village operator will deduct what is known as a deferred management fee, which is capped at a percentage of the purchase price, as well as refurbishment costs and repays the rest of the purchase price.

Heartland Bank chief executive Leanne Lazarus says the product is designed to meet the needs of those trying to sell their family homes in order to finance a retirement village ORA purchase.

Retirement village operators have reported that, with the housing market currently depressed, would-be residents have had difficulty in selling their homes to finance their moves.

“We saw that there was a need,” Lazarus says. “It takes the stress away from a potential borrower. They don’t have to sell their property in this depressed market.”

Lazarus says that a number of existing reverse mortgage customers have sold homes in order to finance a move into a retirement village, providing her bank with experience of this process.

“We saw a broader opportunity that would fulfil a need.”

The current product is a pilot, Jonas says. “It’s a bridging loan. You might not want to sell your home right now. Maybe you want to rent out your home for a period of time to cover your costs,” he says.

Other criteria for accessing the retirement village product include the oldest homeowner being at least 60 years old.

In addition to buying a retirement village unit, borrowers can also pay off any existing loans on the property and can also use the funds to help with associated expenses, including day-to-day living expenses, but no payments are required until the house is sold, as long as that’s within the three years.

Borrowers can also choose to protect a percentage of the eventual net sale proceeds.