Government announces reverse mortgage reform

by Darren Moffatt on August 8, 2011

  • Sumo

What follows is the media statement released yesterday by Assistant Treasurer, Bill Shorten. Good news for senior Australians, but I will comment on this in more detail shortly in a separate post. Regards, Darren

Older Australians planning to take out a ‘reverse mortgage’ on their home will be better protected against negative equity and other pitfalls as part of the Government’s sweeping consumer credit reforms.

The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, today asked older Australians and other interested stakeholders to comment on draft legislation that will increase protections for seniors using a reverse mortgage.

“Many senior Australians have worked hard to own their own home before retirement, and if they need to use credit to access the equity in their home then they deserve to be adequately protected,” Mr Shorten said.

“These measures deliver a new level of protection for seniors who take out reverse mortgages. Reverse mortgages are different from other credit products and it is important the law takes into account their unique characteristics. With these new measures, older Australians can have greater confidence when using these products, and will be able to make better choices.”

Example: Peggy and Bob took out a reverse mortgage twenty years ago. Bob passes away and Peggy is now 85 and has health issues.

Peggy decides to sell the home and move into a residential care facility. However, fluctuations in the property market and the way that debt grows in a reverse mortgage mean that Peggy now owes $1.1 million when the house is only worth $633,000.

Previously, Peggy’s lender could require payment of the debt in full to release the mortgage. Now, under the new negative equity protection, Peggy will only be required to pay back the value of her home when it is sold.

This reform gives borrowers certainty about what will happen at the end of the contract, to assist their planning. (taken from

The changes will amend the National Consumer Credit Protection Act 2009 to significantly reform the regulation of reverse mortgages.

Key measures in the draft legislation are:

  • Australia’s first statutory protection against negative equity, restricting lenders from asking seniors to pay more than the value of their home.
  • Better disclosure of the financial consequences of entering into these types of contracts – so that seniors can better assess how accessing credit can reduce their equity in their home and limit their choices in the future
  • New requirements on lenders before they act on a default – including an obligation to take reasonable steps to contact the borrower in person, make sure they understand they are in default and provide the borrower with an opportunity to rectify the default.

“This draft legislation continues the Government’s delivery of the National Credit Reforms, and our commitment to improve the regulation of equity release products under the Delivering for Seniors package,” Mr Shorten said.

“I encourage older Australians to participate in this consultation and provide their views on the measures outlined in this draft legislation.”

The Government has conducted extensive consultations since February 2010 in the development of these reforms, enhancements, including convening a dedicated consultation working group comprised of key industry, consumer group and legal representatives.

Further details of the national consumer credit package, can be found at

Consultation on the draft legislation closes on 17 August 2011.

{ 2 comments… read them below or add one }

mumlookedaftermei'mlookingafterher August 12, 2011 at 11:49 pm

Yes, I absolutely concur with the negative equity protection … I’m drip feeding my 83 y.o mum whose funds have been obliterated .. she’s widowed and alone in country NSW trying to sell a house that’s been on the market for the last 7 months. Last resort is the reverse mortgage.

Kate January 23, 2015 at 2:42 am

What surprises me is that a reverse morgage was even suggested to my 87 year
Old mother the pension she be able to support her in her final years.
The intereset rates are rediculous ,in another eight years she won’t have a home. She lives in a lovely area and was morgage free.
There was no legal adviser there when she was encouraged to do this.
I would like to challenge the lender on this one . Is there any one I can discuss this with.

Shame on them picking on old people that have supported this nation .

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