A new report has found that Australians now have the second longest average life span in the world - only the Japanese live longer. Today’s average life span of an Australian at birth is about 81 years — some 25 years longer than a century ago — and rising.

While this is obviously good news, it poses a serious financial challenge to the immediate future generations of senior Australians who are not prepared for such an extended period of retirement. How will they fund a decent lifestyle for so long?

There is an excellent article in The Australian today that summarises the problem and offers potential solutions.  The author, Dr Don Stammer, correctly identifies reverse mortgages as a good solution in many cases, if done correctly. Dr Stammer advocates - as does Seniors First -  taking reverse mortgage funds as gradually as possible to better preserve equity for children and beneficiaries.

Kevin Conlon was today appointed as the first Chief Executive Officer of the Senior Australians Equity Release Association of Lenders (SEQUAL), the peak Reverse Mortgage Industry Association.

“Kevin Conlon’s strong background in emerging markets and international banking makes him ideally qualified to take on the inaugural CEO role and guide SEQUAL through the next stage of its development,’ said Kieren Dell, SEQUAL Executive Director.

“The SEQUAL Board determined that SEQUAL had developed to a point where a full-time CEO was needed, and decided that Conlon was the outstanding candidate for the role.”

Prior to joining SEQUAL a year ago to drive the crucial SEQUAL education program as Head of Education, Conlon was the Head of Education for the Mortgage and Finance Association of Australia (MFAA) where he designed and delivered highly successful education programs for Mortgage Brokers. He also has an impressive track record operating at senior levels across a number of financial market sectors  which has seen him lead some of Australia’s most significant corporate finance and capital market transactions.

“I am committed to the process of ensuring that consumers are well-placed to make informed decisions about their retirement funding options. I look forward to the opportunity of guiding the development of an efficient and ethical Reverse Mortgage market,” said Kevin Conlon, SEQUAL CEO.     

The NSW Department of Fair Trading consumer survey on reverse mortgages provides a mixed bag of news for the industry and consumers.

On the one hand, the results show there is a significant un-tapped market with 48% of respondents indicating they would take a reverse mortgage some time in the future. This will gladden the hearts of lenders and provides further evidence, if any were needed, that there is a clear long-term need for these loan products in Australia. However the low existing take-up rate (only 3% of respondents had previously had established a reverse mortgage), indicates that most people still do not comprehend how reverse mortgages can be used to improve quality of life in retirement. 

(These statistics are broadly similar to previously published industry data, and probably within the acceptable range of ‘margin for error’ given the size and methodology of the survey)    

In addition, the fact that 20% of respondents were still not aware of reverse mortgages- even after 5 years of active product marketing by the industry - is somewhat disappointing. On an individual level, the results indicate many people continue to needlessly struggle with money, simply because they are not aware that a reverse mortgage provides them with another financial option.

From an industry perspective, the survey shows that there is still more work to be done in raising public awareness of the concept (the breadth of understanding). However with an 80-90% public awareness of reverse mortgages already achieved , there is a real case for SEQUAL and the industry to focus now on the depth of public understanding and dispel many myths that still exist.   

The NSW Department of Fair Trading recently conducted an online consumer survey on reverse mortgages that provides an intriguing insight into the public understanding of these loans.  Here is a cross section of the best questions and how people answered: 

1) Are you aware of the availability of a credit product for retirees called a reverse mortgage?

Yes - 78% No - 22%

2) Have you ever taken out a reverse mortgage?

Yes - 3% No - 94% Other - 3%

3) Do you think that sometime in the future would you consider taking out a reverse mortgage?

Yes - 48% No - 50% Other - 2%

4) How did you hear about this product?

TV - 35%, Radio - 8%, Newspaper/Magazine - 30%, Website - 3%, Friend/Family - 10%, Mortgage Broker - 4%, Financial Adviser - 2%, Other - 8%

5) If you took out a reverse mortgage what would you use the money for? (Respondents were asked to select all that applied, hence percentages exceed 100%)

Living expenses - 42%, Holiday - 24%, Home repairs - 43%, Medical expenses - 33%, Car - 18%, Help family - 20%, Other - 5%.

Although the sample for this survey was small (only 300 took part), half were in the current eligible demographic for the reverse mortgages in that they were aged 55 years or older.  

The recent announcement that SEQUAL have now accredited more than a thousand reverse mortgage consultants across Australia is both great news for consumers, and a significant achievement for SEQUAL.

It means that no matter where you are located you should be able to track down a local mortgage broker or financial planner who understands the product, and can properly serve your interests with current information and advice. Seniors First -  the company I manage - are proud to be part of this network, with 13 SEQUAL-accredited Reverse Mortgage Consultants nationally.

From a standing start just 18 months ago, SEQUAL have done very well to train and accredit so many industry professionals in such a short time and should be congratulated on their efforts.

More than 1,000 reverse mortgage consultants have now been officially accredited across Australia, according to SEQUAL, the peak industry group representing reverse mortgage lenders.

“Retirees’ demand for reverse mortgages is growing rapidly alongside our ageing population,” said SEQUAL’s Head of Education, Kevin Conlon, who was appointed in 2007 to spearhead the initiative.

“SEQUAL is committed to ensuring seniors have access to accurate information on reverse mortgages and retirement financial planning. In just one year, SEQUAL’s education courses have created a geographically diverse network of trained reverse mortgage professionals on whom seniors can rely,” he says.

‘It is encouraging that brokers and planners are active participants in the program. It is critical that these parties combine their skills in the best interests of seniors,” says Conlon.

“SEQUAL’s Reverse Mortgage Consultant (RMC) designation allows retirees to easily identify market practitioners who have the skills to be considered a trusted source of reliable information. Accreditation is a badge of quality.” 

Choice (Australian Consumer’s Association) recently released a report estimating the major banks are charging consumers $4 billion a year in fees.

Senior borrowers are among the worst affected, with reverse mortgages by two of the largest banks both attracting monthly fees of $12 and $15 respectively. These fees will immediately attract interest, which will eventually compound. Based on their current rate of 10.49%, a monthly reverse mortgage fee of $12 would attract approx $8,000 in compound interest over 20 years!

Some may argue that the monthly fees and higher interest rates charged by the big domestic banks are offset by the security their balance sheet (size) offers consumers. However, for those more concerned with price the good news is there are also much cheaper 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.

The announcement by the Rudd government yesterday that reverse mortgages will be regulated federally through ASIC is a welcome development for consumers. How will this help in a practical sense? It will mean that ALL brokers and organisations selling and advising on these products MUST be licensed and properly qualified. Whilst many reputable groups, such as Seniors First, already meet already meet the standards that regulation is likely to require, the fact is that the current system does not demand all operators comply. Although the vast majority of mortgage brokers do the right thing, there is undeniably a small element of shonky operators. The regulation should weed these guys out, and reduce the risk of getting ripped off or poorly advised.

The down side to this announcement is that the regulation is not likely to take effect until late 2009. So what to do in the meantime? Should you hold off taking from taking a reverse mortgage until then?

 The quick answer is no.  Just be careful who you deal with. Check that your broker or adviser has the following:

• SEQUAL Accreditation
• Access to at least 3 different reverse mortgage lenders
• Membership of the MFAA

If you are unsure or would like guidance, contact Seniors First on 1300 745 745.

The Federal Government yesterday released a Green Paper on the impending federal regulation of the credit sector. This discussion paper indicates that ASIC will soon regulate the provision of reverse mortgages to senior consumers.

The Green Paper outlines a way forward for the Commonwealth and states to transfer the remaining financial services regulation from the State level. Under the plan, delivered by the the Hon Nick Sherry, Minister for Superannuation and Corporate Law, financial services including mortgages, mortgage brokers, margin lending, non-bank lending and trustee companies, will move to the Federal level.

“This is about better protection of the Mums and Dads who take out a mortgage and deserve to know that the brokers selling it to them are reputable and upfront with their fees and charges,” said Mr Sherry.

“The Financial Services and Credit Reform Green Paper provides a plan for change – to benefit the consumer, while reducing red tape and compliance costs for business, and ensuring Australia stays ahead in the international financial services market,” Minister Sherry said.

“On mortgages, it’s absolutely critical that the advice new borrowers receive is top quality and that they are not getting into debt they can’t service. I am also concerned about reverse mortgages and the number of people taking them up without a clear understanding of the implications.”