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

New data just released is showing signs housing finance levels are finally responding to higher interest rates, with the number of home loans for owner-occupiers falling by 5.9% in February (WA topped the list with a 12% fall). This was the biggest fall since the housing briefly popped back in 2004. 

Most of the weakness was in lending to buy existing homes (lending to buy/build has been soft in recent months, but not to the same extent). If you exclude refinancing of existing mortgages, lending dropped 7%, which is the biggest fall since the housing market went nuts around the introduction of the GST in 2000.

Adding in the volatile investor lending category doesn’t change the story much. The total value home loans fell by 8% in February - if you exclude a fall in July this year, this was the biggest fall since the housing bubble briefly popped in 2004 before subsequently reinflating.

For the RBA, it would be happy to see housing finally responding to higher interest rates. These figures pre-date an official rate rise in March and a further increases by the banks, so further big falls in lending volumes are likely.

At this stage, the Reserve Bank would probably only read today’s figures as a sign that the long-awaited slowdown is under way, pointing to rates on hold for the foreseeable future. But if this keeps up, it’s possible official rates will start falling before the end of 2008, which will be welcome news for senior borrowers.

There’s been a lot in the media today about the prospect of house prices falling in Sydney and other parts of Australia by up to 25% over the next couple of years due to the global credit crunch and possibility of recession.

Although no one knows exactly how this will turn out, I think 25% is extreme. My guess is it’s more likely to be around 10% at worst, and history indicates it may not even be this bad. Depending on the source of data, the average annual increase in house prices over the last 25 years has been 6-8%. This includes the periods of negative growth in 1982, 1990, and 2004. Even during the very bad recession of 1990, average property prices declined about 6%. A few short years later any negative growth had disappeared as the market slowly recovered to 4-5% annual growth.

So the first message is this: while property values may decline in the short term, historical trends indicate they are very likely to recover in the medium term.

What does this mean for seniors with a reverse mortgage? Well, the good news is that the lenders have already prepared for this scenario. The lending parameters used by SEQUAL lenders are so conservative that it is extremely unlikely that a fall of even 25% would have any impact on lenders or borrowers. Example: a senior who is 75 years old can only borrow 30% of their property value, so the banks have ensured there is a lot of margin for error in the design of these loan products.

Such a conservative approach may not be sexy, but in these uncertin times it’s certainly prudent. Strong banks are good for borrowers, and the main reverse mortgage lenders in Australia are very well placed to ride out this storm.   

A recent study conducted by SEQUAL, It’s on the house, showed that although 78% of people over 60 had heard of reverse mortgages, only 40% correctly understood how they worked.

In fact, the study showed 28% of seniors held the incorrect belief that a reverse mortgage involved selling a portion of the home.  This is probably at least partly due to the sustained and significant marketing efforts of Homesafe Solutions for the Bendigo Bank Seniors Equity product.  Known as debt free equity release, this is completely different from a reverse mortgage, and does involve a part sale of the property in return for a cash payment.

Although a lot of progress has been made over the last few years, SEQUAL and the industry at large need to do a better job of educating seniors on exactly how these loans work. SEQUAL is asking the federal government to help, perhaps by way of an information campaign. While this would certainly help, it’s probably unlikely in the current climate of government cost-cutting.

So what to do? Well, for a start SEQUAL must more fully engage brokers and intermediaries as a grass roots education channel to other business sectors such as law and aged care. For instance, the understanding and cooperation coming from the legal sector is very poor in some states.

In addition, community and senior organistations  must be more fully engaged by local representatives so that the correct message is disseminated on a regular basis. Ultimately this is about protecting seniors through education, and the industry can’t rely on government to do this important job.   

After recently downsizing their conventional and non-conforming home loan business as a result of the credit crunch, Bluestone have made plans to expand their reverse mortgage business. They have identified this sector as having particularly strong growth prospects over the coming years.

Bluestone will attempt to increase distribution of its reverse mortgage product, EQUITYtap, by making it compulsory for mortgage brokers to become accredited before they explain to consumers the risks and rewards of reverse mortgages.

Under the initiative all brokers must achieve Senior Australians Equity Release Association of Lenders [SEQUAL] accredited reverse mortgage consultant status from May.

This is a very common question at the moment given the current turbulence in financial markets. Whilst this is an individual choice, there are a couple of key points to consider:

• Don’t fix your loan for too long if you think there may be a chance you could sell or pay the loan out early - you could incur substantial pre-payment costs otherwise
• All line of credit options or ‘cash reserves’ must be variable interest
• Some lenders allow you to fix any portion of drawn funds at any time
• Many lenders allow you to ’split’ your loan into fixed AND variable portions so that you can effectively hedge your risk

If are unsure if you are making the right decision with your loan structure and would like some help, go here. 

Today the Reserve Bank decided to leave rates on hold, after previous increases in February and March. This is good news for consumers, and comments from the RBA governor Glenn Stevens indicate the economy is finally slowing with inflation also easing.

Most market analysts predict that there is only a 7% chance of a rate increase next month, and that Australia may be at the top of the interest rate cycle with rate cuts now expected later in the year. 

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

For many retirees on limited funds, this becomes the big dilemma. In most states, the process of selling your home and downsizing to buy a smaller dwelling will cost $40-50,000 by the time you factor in stamp duty, agents fees and legal costs etc.

In addition, many people are forced to re-locate to a new area, away from their family, doctor, friends and community. This is often the most distressing aspect of downsizing.

However, accessing some of the value in the home via a reputable equity release provider can give you more cash and allow you to stay in the home you love. You need to do the sums, but in many cases it will be more cost effective to borrow via a reverse mortgage or similar, than to downsize. A good specialist finance broker will help you with this exercise.

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