If you live in Victoria you may recall the ‘Money for Living’ scam of 2005 where several hundred pensioners were fleeced by a former convicted fraudster operating a dodgy equity release scheme. ASIC have now successfully prosecuted the director, Gary O’Neill, and he recently pleaded guilty to two counts of dishonestly using his position as an officer of a company.

This is a great result for ASIC, and yet another illustration to senior consumers of why it is so important to deal with ONLY SEQUAL accredited introducers when seeking to release equity from their homes.

So how did this dodgy scheme work?

It went like this: Money for Living used the celebrity endorsements of Dawn Fraser & the actor Paul Cronin to aggressively advertise their scheme on TV as an alternative to reverse mortgages. Although it purported to release equity from people’s homes, it in fact required that applicant sell their home for less than market value to Money for Living, in return for a guaranteed monthly income and lifetime tenancy. A BIG no-no.

Money for Living failed to disclose the lifetime tenancy agreements to the lenders who took subsequent mortgages over the properties in question, and the whole thing fell over like a house of cards.  At the time of this debacle in 2005, reverse mortgages were only just getting off the ground in Victoria and many people understandably confused this scheme with reverse mortgages and other legitimate forms of equity release, and the Victorian market has subsequently lagged behind the rest of the country as a result.

This scheme was completely different from conventional equity release. For instance, normal reverse mortgages are just loans that:

• Do not involve the sale of a property
• Do not require an change in ownership structure
• Are repaid from the future sale of the property

 Hopefully this successful prosecution will now see Victorians use legitimate forms of equity release in greater numbers.    

Bluestone Equity Release has announced that they will scale back their Australian reverse mortgage offer as a result of the global credit crunch.

Due to the rising cost of funding, Bluestone have withdrawn from the mortgage broker & financial planner channel. Although their award-winning reverse mortgage will still be available via credit unions and other alliance partners, the product will no longer be sold through mortgage brokers due to the higher cost of originating loans through that channel.

Whilst this is disappointing for consumers, as the product level of choice diminishes further, it should hopefully be temporary. Indeed, Bluestone CEO Peter McGuinness has indicated that once global liquidity pressures ease, they will review this decision.  

The Australian Securities & Investments Commission (ASIC) is seeking people to participate in research on reverse mortgages. ASIC is undertaking this research into consumer’s experience of reverse equity, as part of it’s role as the consumer protection regulator.

Participants must live in Victoria and have taken out a reverse mortgage within the last 12 months. The research involves a confidential 40 minute chat. Chant Link & Associates, the agency conducting the research on behalf of ASIC can be contacted on 03 9517 9607.

When establishing a reverse mortage, it is usually a good idea to provision for your future needs within the loan structure as well. In addition to borrowing a lump sum for your immediate needs, you can often also set up a ‘cash reserve’ or ‘line of credit’ that can act as an emergency fund for future use.

In this way you can avoid ‘top up’ fees that the banks will charge if you have to formally request additional funds in future. There is no interest charged on the money in the cash reserve that don’t use.

Cannex, the main rating agency for financial products in Australia,  has just announced the findings of their most recent research into Australian reverse mortgages, and they’ve found only two providers are worthy of their ‘5 star’ superior value rating.  

Although the Cannex research is a handy tool, it should just be one factor among many when choosing your lender. Ultimately,  your choice of lender will be determined by your individual needs; the best lender for you may not necessarily be the best for your friend, for instance.

You should seek out a SEQUAL accredited reverse mortgage broker to help you with this process.

The two lenders to receive 5 star ratings were ABN Amro & Bluestone. For more info on both go here

The Bendigo Bank seniors equity product, also known as debt-free equity release, can be a good alternative to reverse mortgages in some cases. It is not a loan, and there is no interest. Instead, you sell a share of your home in return for cash.

This product is only available in metro Sydney and Melbourne at this stage. For more info go to Equity Release Expert.  

In addition on April 17, ASF announced that they would suspend all new lending. A notice from Managing Director John Thomas said:

“While ASF does not source its funding from the global capital markets it is nevertheless still indirectly impacted by the turmoil and this directs us to adopt and implement a more conservative approach to lending.”

According to Stuff, Sentinel in New Zealand (owned by the ASF group) has also pulled back from new lending.  

ASF has also announced that Jeff Kennett has resigned as Chairman of the board, effective immediately.

ASF have recently announced that they have suspended a number of product offerings indefinitely.

They will no longer be offering their ’50’s Plus’ product, where borrowers under 60 can still access funding as long as they service the interest until they turn 60. There is still one Australian lender who will do reverse mortgage for people as young as 55. For more info go here or to Seniors First.

In addition, ASF have also ceased their retirement village reverse mortgage. Although this had a very limited take up in Australia, it was thought to hold a lot of potential for future growth.   

Reverse mortgage lenders in Australia require that the security property for a loan is a residential house. Although some lenders will accept investment properties and holiday houses, most only accept the main owner occupied residence of the borrower(s).

Rural properties greater than 10 hectares (25 acres) are usually not acceptable, nor are commercial or industrial premises.

One bank however will lend up to 50% of the property value against investment properties regardless of age. For more information go to Seniors First

It appears Choice (Australian Consumer Association) are about to release a report that shows the major banks are charging consumers $4 billion a year in fees.

The worst of it in my view is the $12 monthly fee for the Commonwealth Bank reverse mortgage, and the $10 fee for the St George reverse mortgage. These fees will immediately attract interest which will eventually compound. Based on their current rate of 10.37%, their monthly reverse mortgage fees of $12 would attract approx $8,000 in compound interest over 20 years.

There are far better alternatives available in the market. Many lenders do not charge monthly fees at all, and have significantly lower rates. For assistance go here or to Seniors First.

Interest on bank fees - completely outrageous!!