Banks quitting reverse mortgages ‘spells opportunity’ for brokers

Mr White’s suspicion is that “the banks put reverse mortgages in the ‘too hard’ basket” following multiple, often concurrent, inquiries into their lending practices.

“They have become almost scary for some because of the well-publicised failures, but often those failures are because banks have been negligent in their assessment of the needs of older Australians,” the FBAA managing director said.

He urged brokers to educate themselves on, and take advantage of the opportunities in, the reverse mortgage market.

A review of the $2.5 billion reverse mortgage market by the Australian Securities and Investments Commission (ASIC) earlier this year, which drew data from 17,000 reverse mortgages, found a number of benefits of this type of loan, which allows Australians over 65 years old to access finance using the equity in their homes while living in the property and not having to make repayments until the borrower sells the property or passes away.

ASIC noted that the reverse mortgage market had shrunk significantly since the global financial crisis, with just two credit licensees providing 80 per cent of the dollar value of new loans between 2013 and 2017.

Over those five years, Bankwest, Commonwealth Bank, Macquarie Bank, Heartland Seniors Finance (HSF) and Westpac lent 99 per cent. However, all these lenders, except for HSF, exited the market in the last two years.

At the same time, the National Debt Helpline, a free independent service launched in 2011 for Australians experiencing financial difficulty, revealed that the helpline has been particularly busy this year, with an increasing number of seniors reaching out for assistance.

The Salvation Army’s financial counselling service, Moneycare, also revealed seeing an 18 per cent increase in Australians requesting help, particularly those over the age of 55 and in “severe debt” (where the total sum of their loans are more than six times their annual disposable income).

While acknowledging the benefits of reverse mortgages, including that it allows seniors to live a more comfortable retirement, ASIC also noted in its reverse mortgage report that some lenders had not conducted proper investigations into the long-term financial health of prospective borrowers, who could be affected by rising interest rates and declining property prices if left in the dark about risks.

The FBAA had suggested earlier this year that there should be mandatory training and accreditation for financial services providers operating in the reverse mortgage market to ensure borrowers receive the right advice and understand the long-term implications and opportunities.

Speaking to The Adviser recently, Andrew Ford, the CEO of HSF, which is the largest non-bank reverse mortgage lender in Australia with a 20 per cent market share, said that while there are improvements that can be made by all entities operating in the reverse mortgage market, such as removing potentially unfair contract terms, there are also misconceptions around reverse mortgages that need to be addressed, the most prominent one being that borrowers could lose their homes.

He explained that reverse mortgages have stronger consumer protections than standard home loans (under the National Consumer Credit Protection Act) that prohibit such a scenario from coming to fruition, adding that HSF has never evicted a customer.

HSF also said in a statement following the release of the ASIC report that the lender “is very much aligned” with ASIC in regards to improving the detection and prevention of elder abuse in the reverse mortgage industry, adding that HSF has already made a number of changes since the commencement of the review.

The reverse mortgage lender also agreed to participate in an ASIC working group to improve lending practices.

[Related: Brokers well positioned to demystify reverse mortgages]