I was recently interviewed for the article below & am keen to hear from any people this may have affected. Post your comments below or email directly at info@seniorsfirst.com.au

Regards,

Darren

Vast changes to the reverse mortgage market in tandem with the recent NCCP introduction is leaving a large pool of older borrowers without acces to funds.

Seniors First managing director Darren Moffatt said that since the global financial crisis, reverse mortgage lender numbers have contracted drastically, down from 21 prior to the crisis, to four major lenders at present, including St. George, CBA and Bankwest.

Moffatt said while the previous minimum age for equity release was 55, it has now also increased to 63, but mostly 65.

“The sector has really felt the brunt of the GFC; equity release requires capital to be tied up for a long time, so when capital became scarce, the sector was the first to feel the result of that,” Moffatt said.

The result is that the expectations of many older borrowers for access to equity in their properties is often not being met, Moffatt said.

“I have literally had quite a few potential borrowers on the phone, and when they have found out they can’t get money like they used to be able to – they can’t release equity – they are really angry,” he said.

The NCCP is only compounding the problem for 55-65-year-old borrowers.

“The NCCP is definitely causing lenders to be very, very careful or reluctant to lend to people in their late 50s to early 60s with forward mortgages; if they don’t have an exit strategy – for example a large super fund, or a second property – it can be difficult for these borrowers to get funds,” Moffatt said.

“The point is, this very significant change across the industry has happened, and is affecting a huge amount of people that have no idea that the change has occurred,” he said.

Moffatt argues the result is a “massive market opportunity” for banks and other lenders in the pre-retiree space, due to huge demand for access to existing equity as the community ages.

Source: this article originally appeared here: http://www.brokernews.com.au/news/newsletter/117418

The assistant treasurer, Bill Shorten, recently tabled new ’second phase’ National Consumer Credit Protection (NCCP) legislation to parliament. For reverse mortgages, the Bill includes:

• A no-negative-equity guarantee for reverse mortgages, so seniors can’t end up owing more to the lender than their home is worth
• Other protections and disclosure requirements to ensure consumers can use reverse mortgages with confidence.

Mr Shorten praised the conduct of the reverse mortgage industry body:

“Development of the reverse mortgage reforms has been assisted by the mature and constructive approach taken by the reverse mortgage industry and its peak body, SEQUAL,” Mr Shorten said.

“The reverse mortgage industry anticipated the need for consumer protections and acted by introducing a robust industry code – some aspects of which are reflected in our legislation.”

In response, the peak equity release industry body (SEQUAL) acknowledged the considered approach taken by the Gillard Government in consulting with industry in order to ensure that new regulations will both protect consumers and preserve choices for Senior Australians facing the challenge of funding their retirement.

The SEQUAL Chief Executive, Kevin Conlon confirmed that Government had been willing to take the existing high standards of practice within the Australian equity release industry into account in order to avoid an unnecessary regulatory burden on this rapidly growing market. “This has been a very good example of effective consultation between Government and industry which has resulted in meaningful outcomes for consumers”, he said.

Conlon argues that, “With the emergence of the Australian equity release market, senior Australians now have the ability to tap into the stored wealth of their home in order to live well in retirement and importantly, stay in their home”.

The introduction of the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 in the House of Representatives, reinforces the consumer protection initiatives introduced by SEQUAL which were described by the Assistant Treasurer as “a robust industry code” and ensures that all equity release providers must meet these standards.

However, Kevin Conlon warned that there is much more that needs to be done in order to protect the entitlement of Senior Australians to access their wealth in order to live well in retirement. “We continue to encourage Government to develop effective programs to improve the financial literacy of those facing the challenge of funding their retirement”, he stated.

The recently announced reforms to reverse mortgages (as part of phase two of the NCCP) are to be applauded.

By mandating that lenders provide a ‘No Negative Equity Guarantee’, all seniors can now feel comfortable that reverse mortgages are safe.  And by also ensuring that intermediaries such as brokers provide better disclosure of the possible financial consequences of entering into these types of contracts (by way of equity projections using recognised reverse mortgage calculators) the government has also helped seniors better assess how accessing credit can reduce their equity in their home and limit their choices in the future.

However, it must be said that members of SEQUAL have been providing these protections and following these processes for years, and have an extremely low customer complaint ratio to show for it. It is a testament to SEQUAL that the government has adopted these ideas.

What these reforms won’t stop however, is a small number of seniors being incorrectly sold a ‘reverse mortgage’ when in fact the loan they are being offered is not a true reverse mortgage, but a ‘line of credit’ or ‘low doc’ that affords none of the protections listed above.

If you are unsure about the loan you have, email me at info@seniorsfirst.com.au

Darren

A call for the asset rich to use equity release to fund their aged care needs is being debated at a series of public hearings conducted by the Productivity Commission.

Responding to the “Caring for Older Australians” draft report, the peak equity release body (SEQUAL) argues that whilst older Australians should be encouraged to access the wealth they have accumulated through home ownership, they should not be discriminated against either on the basis of their success or age.

The report states that, “Many participants to the inquiry, including consumer organisations, called for greater aged care contributions from those older Australians who had the financial capacity to do so, provided that those in need were protected”.

However, the SEQUAL Chief Executive, Kevin Conlon said today that “Equity release strategies are likely to emerge as a significant part of retirement funding and the current debate around the levels of Aged Care co-contributions needs to be carefully considered against that growing demand”.

 “There is good reason to explore the options provided through equity release in order to meet the challenge of living longer in retirement”, explained Conlon.

 The Australian Housing and Urban Research Institute (AHURI) surveyed 1,600 home owners aged 55 and found that more than 90 per cent of those surveyed wanted to stay in their home, with only 63 per cent saying they were happy to consider living in a retirement village if they needed help.

 Conlon argues that, “With the emergence of the Australian equity release market, senior Australians now have the ability to tap into the stored wealth of their home in order to live well in retirement and stay in their home”.

The two primary investments for many Australians will be superannuation and their family home but for those now approaching retirement, compulsory super came too late for a generation that can expect to live longer than any generation before them and intends to live well in retirement.

 The good news is that the majority of senior Australians have achieved the “Great Australian Dream” of owning their own home. Total Home Equity (Owner Occupied) was $887 billion, at the end of 2005. The Over 60s accounted for $345bn (39%). Source: Australian Bureau of Statistics.

 However, the so-called Boomers have relied heavily on property ownership to create wealth and this has made them asset-rich but cash-poor. In the past, any retiree in this difficult position, had two choices; reduce their living standards or sell the home (often having to then move away from family and friends).

 Mr Ian Yates, Chief Executive of the Council on the Ageing is reported as saying that his organisation has been “telling governments for years that older Australians want to stay in familiar surrounds”.

Conlon asserts that, “the family home is now an intrinsic part of the planning process” and warns that, “It is vital senior Australians have choices and are well-placed to make fully informed decisions about their retirement funding”.

 The two main types of equity release products are Reverse Mortgages and Home Reversion Plans. Each product type offers the opportunity to release equity as either a lump sum or as an ongoing income stream, without an obligation to make regular monthly repayments.

 The strategies for Equity Release are diverse. For some retirees they are an effective means to supplement income or to provide access to capital. For others, equity release can be a tool to help manage market volatility. For frail retirees with poor health, it can provide them with choices for accessing the care they need and provides the ability to pay the aged care fees.

 When used effectively, Equity Release may help senior Australians to access the significant wealth they have accumulated in their home in order to more effectively live the life that they choose.

As reported in the Sunday Telegraph, a new report by Superratings.com.au has shown that the global financial crisis continues to decimate the retirement incomes of senior Australians. Thousands of self-funded retirees have been forced to take cuts of up to 30 per cent in their  superannuation pensions,  and many are beginning to turn to reverse mortgages to ‘plug the gap’.

The Superratings data shows that somebody retiring with a pension fund of $700,000 in 2007 could have expected an annual income of $45,000 for 20 years. But because of the stock market crash and weak performance in the past few years, that income has to be cut to $32,000 today otherwise it will run out years ahead of schedule. 

Many self-funded retirees are now really struggling financially, despite years of prudent saving. Thousands have turned to Centrelink to claim a part-pension to top up their incomes, but even this is often not enough. At Seniors First we’ve seen a huge increase in self-funded retirees coming to us for a reverse mortgage to help with larger expenses and to provide a back up line of credit in case their superannuation balance does not recover.

As I said in a recent interview with the Sunday Telepgraph, the SEQUAL statistics show that the proportion of retirees using reverse mortgages for debt consolidation has increased by 25 per cent in just two years. This seems to indicate that seniors are either retiring with more debt than ever before, or worst still, they’re accumulating high levels of new debt in retirement. I think both factors are at play, but I’m more worried about the latter because pensioners are racking up debilitating credit card debt like never before.  

At Seniors First we see many retirees who’ve struggled for years to pay the bills on the pension, only to turn to credit cards when they finally run out of spare cash. It is not uncommon for them to approach us for help only once they’ve already accumulated $30-40,000 of credit card debt. With rates of 18 or 19 per cent (at least), credit cards are probably the worst option for paying bills and covering the cash shortfall the aged pension leaves for many.    

If you’re an Australian senior watching with alarm as your credit card balance continues to grow each month, and you have no way to pay it off, you should seek help as soon as possible. The earlier you attack this problem, the better. Not only could you save thousands of dollars in exorbitant interest payments, your quality of life will suffer until you’re able to eliminate this source of worry. A frank discussion with children and/or family is often a good place to start.

Whilst using a reverse mortgage or equity release product to pay off credit cards and residual home loans can be a good strategy if there are no other alternatives left (such as using super or selling the home), it raises more fundamental questions about the inadequacy of the aged pension, soaring personal debt levels in general, and the paucity of consumer education on financial management.

Earlier this week the Homesafe Solutions senior’s equity release product was profiled on Channel 7’s Today Tonight program. The story was well-balanced, and tapped into the fast-growing demand for home equity release amongst Australian pensioners and self-funded retirees.

The Homesafe Solutions ’Debt-free equity release’ can be a good solution, and for some people will be a preferred option to a reverse mortgage. However, the product is only currently available in metro Sydney and Melbourne, so many seniors who need to access equity in their home do not have this option available. Aside from selling and downsizing, a reverse mortgage may still be the only viable option for many retirees.

Contact Seniors First on 1300 745  745 for more details on equity release options currently available to you.

All reputable Australian equity release lenders will insist that you obtain independent legal advice as part of the transaction. Indeed, you will not receive any funds until advice has been signed-off by your solicitor. This is of course a good thing: it protects you from potentially entering into an agreement that you don’t understand. All SEQUAL lenders abide by a strict code of conduct that demands this as a requirement for membership.

However, many people do not realise that this requirement also protects the lender. Independent legal advice is the best way they have of guarding against any possible mis-selling by dodgy mortgage brokers. It also ensures the lender’s legal position is sound in the case of any possible future dispute with the borrower or their estate.

If your reverse mortgage lender is not asking for you to obtain legal advice, you should really question their credibility. Check your lender here. 

In a welcome development for the Australian equity release industry, SEQUAL has now become the umbrella body for equity release rather than just an association of lenders. As a result of this change Homesafe Solutions has become a member of SEQUAL. Homesafe Solutions, Bendigo and Adelaide Bank, provide an alternative to reverse mortgages called Debt Free Equity Release. This is a ‘non-debt’ form of equity release that allows homeowners over sixty to sell a share of future sale proceeds of their property in return for cash, whilst still enjoying the benefits of home ownership. The change to SEQUAL and the resulting membership of Homesafe Solutions is a real win for senior consumers, as now all major recognised providers of equity release products in the Australian market belong to the one industry body.  All members of SEQUAL provide a ‘No Negative Equity Guarantee’ and abide by a strict code of conduct. Reverse Mortgage Watch strongly endorses SEQUAL and recommends that consumers only use SEQUAL members for equity release. 

According to Reverse Mortgage Daily, a U.S leading blog on reverse mortgages, the ‘penetration rate’ for reverse mortgages has just exceeded 2% for the first time.

This means that of all households in America that are eligible, more than 2 per cent have now established a reverse mortgage to help fund their retirement. By comparison in Australia, where our reverse mortgage industry has been active for much less time, the ‘penetration rate’ (or take-up rate) of reverse mortgages is still only about 1 per cent.

Given the huge shortfall in retirement savings and the growing numbers of ‘baby-boomers’, it will only be a matter of time before Australia too exceeds a 2 per cent take-up rate of reverse mortgages amongst eligible households.