Bank to pilot loan for homeowners with an eye on a retirement village

Monday, 17 March 2025

Heartland Bank is aiming to tap into a $4 billion dollar market with a new bridging loan product for older New Zealanders wanting to move into retirement villages.

Demand for retirement village offerings continues to grow, driven by the country’s ageing population.

About 53,444 people currently live in villages, but demand is estimated to reach 112,624 people by 2048, according to JLL’s most recent retirement village review.

Now, the NZX-listed banking group has spotted a gap in the market, and has announced it is piloting a product that will allow people to access the equity in their home to purchase a retirement village property.

Heartland Bank chief executive Leanne Lazarus said generally people needed to make an upfront payment to buy an occupational rights agreement (ORA) for a property in a village.

That usually meant they had to sell their home to fund an ORA, but that could be difficult depending on the market, or the timing of their decision, she said.

“They may find a place in their ideal village, and want to secure it, but not have their house on the market, or even ready to sell. That can be difficult and stressful, and our new Village Access Loan aims to help.

“In essence, it is a transitional mortgage product that allows people to fund access to a village if they are not able to sell their home right away.”

Retirement village operators, such as Ryman Healthcare and Summerset Group, have said the subdued housing market is impacting on prospective residents’ ability to sell their homes and purchase ORAs.

Heartland’s new loan offered a practical solution to this particular issue, Lazarus said.

“But most banks don't want to fund this type of product. So it is a niche loan product that we are moving into, but we see it as a growth area, especially given the ageing population.

“It is a way to differentiate ourselves from other banks, but it is also an opportunity in the market, and we feel we will be serving the needs of the community.

“Senior finance is an area we want to build more financial solutions in.”

Heartland group chief strategy officer Michael Jonas said about 6000 ORAs were entered into every year, so up to 6000 people were making ORA payments upfront and might need the new loan.

That equated to a $4 billion need out there in the market that was not being currently served, he said. “If we capture 5% to 6% of the market acquiring ORA’s that would be a great outcome for us.”

Heartland was working with a retirement village operator to pilot the loan, and to refine what it would look like and how it would work, he said.

“There is definitely demand out there, but in terms of what the size of that demand will be we can’t yet say. The pilot will show us where we want to take it.”

The new loan was different to a reverse mortgage because it was not designed for people who wanted to keep living in their home, and it was limited to a three-year loan period, he added.

Heartland recently announced a big drop in its half year profit, and said it was winding down its home loan book.

But Craigs Investment Partners senior research analyst Wade Gardiner said that would not be a factor in the development of the new loan, and did not suggest a reorientation of its business.

Heartland has always had strong growth in reverse mortgages, with that book consistently growing by about 15% to 20% per annum on both sides of the Tasman over the last five years, he said.

“So senior finance is not a new focus for the banking group.

“They tend to focus on niche areas where the bigger banks don’t play, so rather than reorienting it looks like they have seen an opportunity to fill a gap in the market, and that’s driven the new loan product.”

Given New Zealand’s ageing population, the product was sensible, although it was a bit cyclical, he said.

“Right now the property market is quite slow, so anyone trying to sell a home to go into a retirement village might find it difficult, and that’s good for this product.

“Conversely, if there’s a stronger property market it might mean less demand for the product. And not everyone buying an ORA will need a bridging loan.”

Gardiner did not have a view on how the new product would play out for the bank, but said it would be interesting to see what sort of take up it got as there was potentially a big market for it.

Heartland’s Village Access Loans would be open to homeowners over 60, and the bank would lend up to 50% of a house’s value for up to three years.

The loan must be used to purchase an ORA in a retirement village, but borrowers could also use it to pay off existing loans on the property and for associated expenses, including day-to-day living expenses.

Borrowers would not have to make regular payments, and could rent their house out rather than selling it immediately, but the loan and any interest would have to be repaid by the end of the three year term.

Heartland said the loan pilot was not yet open for applications, but was expected to be launched in the coming weeks.