As reported in the Herald Sun, the $3 billion reverse mortgage industry is set for a major overhaul with new laws and tougher disclosure rules expected in the new year as phase two of credit regulation under NCCP, commences.
The Federal Government plans to ban contracts which allow negative equity to build up on a reverse mortgage and will also beef up information disclosure requirements to ensure people fully understand what they are getting into.
However, the tough new regime may signal a further decline in the number of these loans offered by lenders. Several major reverse mortgage lenders have withdrawn from the market, and the new proposed higher requirements for capital levels could further reduce lender numbers. The Australian Prudential Regulation Authority informed financial institutions they must ensure they hold greater levels of capital, compared with traditional mortgages, to cover any potential defaults. The requirements make these loans less profitable.
From almost a standing start five years ago, the growth of reverse mortgages has been up to 77 per cent a year but has recently slowed to just 9 per cent. However, they remain popular with people who want to access the money without selling their homes.
SEQUAL spokesman Kevin Conlon says the looming law changes will help bring all lenders in line with existing guidelines and should not further reduce supply of loans.
“The growth has slowed mainly because consumers are more cautious and they are delaying their retirement,” Conlon says.
“They have to carefully consider their budgets, and generally living longer, so we have found they are delaying their equity release until other income sources are exhausted.”
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We just have to be careful when we write about Reverse Mortgages.
Yes, earlier this year APRA did write to lenders about having higher levels of capital, in comparison to standard mortgage.
BUT it was the same direction they gave to lenders in 2005 – NO CHANGE.