According to new research, more than 90% of home owners aged 55 and over want to stay in their homes for as long as possible.

An Australian Housing and Urban Research Institute survey of 1,600 ageing home owners found the vast majority of home owners wanted to stay in the familiar surrounds of their own home, rather than elsewhere.

The survey also found 37% of older Australians did not want to live in a retirement village, even if they needed help.

SEQUALchief executive Kevin Conlon said in response to the survey that equity release products such as reverse mortgages, provided these older home owners with a way to tap into the stored wealth of their home, thereby helping them stay in their home for longer.

However, he said seniors considering equity release products should find an adviser that has gained industry accreditation.

Reverse Mortgage Industry Body Warns Government Against Poorly Considered Regulation

Kevin Conlon, Chief Executive of SEQUAL, the peak industry body for the Equity Release market, has responded in support of the initiative announced by the Prime Minister but warns that any regulatory change needs to be carefully considered and proper regard given to the extensive industry self-regulatory initiatives that already exist. He stated that, “SEQUAL is committed to the development of an efficient and ethical Seniors Equity Release market in Australia”.

Conlon has called on Government and Regulators to acknowledge the meaningful consumer protection measures that have been delivered by SEQUAL and provides a warning should this message be ignored.

“Equity release is likely to emerge as a significant part of retirement funding and the current debate around advice and regulatory review needs to be carefully considered against that growing demand to ensure choices and legitimate strategies in retirement funding are not extinguished through unnecessary regulatory change”, warned Conlon.

The Prime Minister’s statement included a commitment to provide greater consumer protection for reverse mortgage customers. However, SEQUAL’s Chief Executive pointed out that, “The two initiatives identified by the Prime Minister today are already market practice for SEQUAL Members”. Conlon added that, “effective product disclosure is delivered through the SEQUAL Key Facts guideline and a mandatory obligation to provide a No Negative Equity Guarantee is a condition of SEQUAL Membership”.
 
SEQUAL’s role as the peak industry body for the Australian Senior’s Equity Release market is well established and there is wide support for market practitioners to gain industry accreditation with SEQUAL.

“It is only through mutual respect that Government, Regulators and Industry will deliver on the common goal of ensuring that consumers are well-placed to make fully informed decisions about their retirement funding”, warned Conlon.

In announcing the “Delivering for Seniors” package on Saturday, Prime Minister Gillard has confirmed that a re-elected Labor Government would provide greater protection for older Australians with a Reverse Mortgage. She said she would ’stop the rip-offs’ and provide the following protections:

• Extended protection for reverse mortgages and home reversion schemes, including greater disclosure of the features and fees on these products.
• A statutory protection against negative equity so consumers aren’t left with a debt significantly greater than the value of their property.  

Whilst these goals are laudable, they seem to ignore the fact that such protections largely exist already. SEQUAL providers already fully disclose all fees and charges payable, and insist borrowers obtain independent legal and financial advice so they’re fully informed. In addition, SEQUAL providers offer a ‘No Negative Equity Guarantee’ which shields senior borrowers from the effects of potential future negative equity (ie; if the size of the debt were ever to exceed the value of the home).

Although the official reverse mortgage industry’s self-regulation via SEQUAL is fundamentally sound, fringe dwellers and rogue operators offering dodgy financial products purporting to be ‘equity release’ continue to pose the gravest threat to seniors. If the Prime Minister’s initiatives have the  effect of shutting these operators down and forcing all remaining providers to adopt SEQUAL best practise, then a significant positive reform will have been achieved.

From July 1st, ASIC formally took over the regulation of the Australian credit market with the Federal Government’s new legislation, the National Consumer Credit Protection (NCCP) bill, coming into effect for the first time.

This is a win for consumers generally, and seniors in particular. The centrepiece of the bill, ‘Responsible Lending’, now makes it an offence for a lender, bank or broker to recommend a loan or credit product that is unsuitable for the borrower.  There is now a much higher onus on lenders and brokers to ‘know their client’ and ensure that any product selected is ‘not unsuitable’.

OUTCOME: This will better protect vulnerable consumers from unscrupulous lenders and brokers. In particular, those rogue operators who have in the past recommended ‘Low Doc’ or ‘No Doc’ loans for pensioners and the elderly – often with devastating effects – will now find it much harder. Consequently , it is highly likely that regulation will drive many such ‘fringe dwellers’ from the industry, thereby improving both the professional standards of the mortgage broking community, and the experiences that consumers have when seeking credit through such intermediaries. 

Reverse mortgages will be subject to further specialist treatment under ‘Phase Two’ of regulation, from Jan 2011.

TIP: When dealing with a mortgage broker in future, you should check that they are registered with ASIC first.    

Although a number of prominent lenders have left the market over the last eighteen months due to the global financial crisis, a new study has found that the reverse mortgage market continues to grow with total loans now exceeding $2.7 billion.

The SEQUAL report found that reverse mortgages increased by 4 per cent in the 6 months to December, and 9 per cent in the 2009 year. There were more than 2,665 new reverse mortgages originated in the second half of 2009. In addition, the average loan size has increased from $51,000 in 2005 to $70,000.

SEQUAL CEO, Kevin Conlon, said that the perception of reverse mortgages amongst retirees has been steadily improving amongst retirees over recent years, and that the trend towards home equity release was inevitable due to the rapidly ageing population.

"Attitudes towards retirement funding are changing. The home is increasingly being considered a part fo the planning process with equity release being seen as a means to unlock the substantial wealth stored in property."

The report also found that ‘home improvement’ was now the most popular purpose amongst reverse mortgage borrowers.   

In a positive move, the state government has just announced in its budget that NSW home owners over 65 will soon get an exemption on stamp duty when downsizing to buy a new home for less than $600,000. This represents a potential saving of about $25,000, and will make selling and buying another home of lesser value more attractive for many.

Although some commentators have already made the point that the dollar limit of $600,000 should be higher (given the median house price in NSW is $600,000 too), it is nevertheless a long overdue step in the right direction.  

For retirees who need to access some value in their property but do not wish to sell their family home, reverse mortgages and equity release products will remain an attractive option.

The most popular reverse mortgage lender in Australia over the last few years, Royal Bank of Scotland, recently announced it has suspended all new lending pending a trade sale of the reverse mortgage business. Existing commitments will continue to be honoured and current RBS reverse mortgage borrowers will not be affected. 

Following a strategic review of its businesses, the partially state-owned Royal Bank of Scotland decided to exit all non-core retail businesses outside of the United Kingdom. As a result, it is closing its Reverse Mortgages Services Pty Limited.

It is hoped however that the RBS product range will re-emerge in several months under different ownership. Give that there are now only three or four significant reverse mortgage lenders remaining, the permanent exit of the former RBS product would be a major blow to senior borrowers and the aged care industry, for whom RBS was the major funder of accommodation bond finance.

Until its closure to new reverse mortgage applications, RBS was attracting around 40 per cent market share for all new reverse mortgages in Australia. 

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 the SMH, superannuation savings are woefully inadequate and will leave Australians nearly $700 billion short of what is needed to live decently in retirement, according to new research.

The Investment and Financial Services Association has calculated that by the middle of 2008 Australians had a retirement ‘’savings gap” of $695 billion, a dramatic increase on the $452 billion gap when the group last assessed super contributions.

The latest numbers do not include the worst of the global financial crisis, so the gap is likely to have grown. More recent data was not available. The figures mean the average savings gap is $73,000 a person, an increase of $26,000 over the previous four years.

Reverse mortgages and equity release products are a natural part of the solution to this, but the sharp reduction in lenders and product choice arising from the global financial crisis will impair the ability of some pensioners and retirees to find a solution.   

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.