Reverse mortgage market braces for regulation
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BN
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22/11/2010 5:45:00 AM
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New Federal Government regulations governing the reverse mortgage and equity release market could serve to reduce the market.
Under the new rules, coming into effect early next year, contracts allowing negative equity will be banned, and reverse mortgage providers will be required to produce a consumer statement to disclose the terms of the loan and what it means for borrowers.
As new regulations from the Australian Prudential Regulation Authority have made the industry less profitable, growth has slowed in the industry from up to 77% a year in the past five years to just 9% in more recent times, reports News.com.au.
The new rules could see a further reduction in a market from which several major lenders have already withdrawn, the report says.
However, industry peak body SEQUAL has maintained that the changes will merely bring all lenders in line with voluntary industry guidelines to which 95% of the market already submits.
The group doesn’t believe the changes will affect the availability of funding, and says the slowdown in the market is due to consumers exercising a greater degree of caution, and not a reflection of Federal Government regulation.
Reverse mortgage and equity release loans are generally only available to people over the age of 60, and some have some of the highest interest rates and often carry additional fees.
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Chris on
22 Nov 2010 01:42 PM
Reverse mortgages are literally consumer type home loans with capitalised interest over a term. Funders take liberty with this small market and overcharge interest when they should not. Age, term and loan LV size dictate risk covers - they are gauging our elderly because they can and will keep doing this until someone puts a stop to it. There is no reason whu they cannot be approved as a normal home loan rate with discount packages applying accordingly.
Twiggy on
22 Nov 2010 01:56 PM
New rules from APRA? Sorry that''s incorrect - The statement from APRA earlier this year only reconfirmed its direction issued to the market in 2005.
All Sequal lenders already have a "no negative equity guarantee", and so do lenders outside Sequal. This is a follow up to an election promise made by Julia Gillard and has little bearing on existing lenders/products.
To really understand the future market, one should look at Federal Government policies in regard to Aged Care, mimising new beds but increasing the HACC, CACP and EACH packages, all of which assist our elderly to remain in their homes. But none of these packages allow repairs and maintenance to the family home. The stakeholders operating these Government packages are learning about the safety concerns in these homes, which have existed with years of minimal repairs and maintenance.
Governments in UK and USA are also increasing current legislation on Equity Release/Reverese Mortgages so that seniors have confidence to pay for their own needs at home.
Country Broker on
22 Nov 2010 02:43 PM
This is rubbish, I agree with Twiggy as above, this market is seriously lacking competition, that is how the banks who are in this space are seriously over charging , it is not a high risk market if the LVR''s are kept under control. The rates are basically 1.00% to 1.50% above the normal rate and if you take into account that the rates are basically compounding the returns are very profitable, the only thing that is needed is a good look at how the banks are charging , as for a no negative equity , they are there already placwe and in accordance with SEQUAL requirements. Who ever at Federal Goverment or APRA is making noise it is just that "noise".