Comments about reverse mortgages by the chairman of the Australian Securities and Investments Commission Tony D’Aloisio were unduly negative and were based on out-of-date research, a leading reverse mortgage provider said.
The head of RBS Reverse Mortgages, Martin Lynch, said ASIC’s view of the reverse mortgage market was informed by a small number of interviews conducted over a year ago.
Lynch said: “The market has moved on since then. Our own research tells us consumers have developed a sophisticated understanding of the product.”
D’Aloisio made his comments last week at the launch of a booklet explaining reverse mortgages – Thinking of Using the Equity in Your Home? A New Independent Guide to Reverse Mortgages and Other Equity Release Products.
He said: “Our research shows that people find it difficult to understand these products. One of the big challenges is how to estimate the long-term cost of reverse mortgages and ensure there is enough equity left to fund future needs.
“We’re also concerned that people are sometimes encouraged to borrow more money than they actually need, ultimately at a greater cost to them.”
Lynch said: “We don’t have any problem with the technical content of the guide but the case studies are one-sided. They all tend to be negative.
“ASIC’s view of the market is based on 29 interviews it conducted 18 months ago.
“We did our own research, conducting 425 interviews last December, and found a well-informed consumer group making rational choices.”
One view of reverse mortgages is that they are used by retired people to finance luxuries that their retirement incomes would not otherwise allow.
Lynch said: “The most common use (in 32.6 per cent of cases) was to fund home repairs.”
Loans were taken out to provide income in 19 per cent of cases, to buy a car (15 per cent) and to assist family members (seven per cent of cases).
Under the “luxury” heading, travel made up 8.8 per cent of the use and the purchase of a boat or caravan 0.9 per cent.
“As to the comment that people borrow too much, the average loan to valuation ratio is 18 per cent. The average age of our borrowers is 74 and at that age they are allowed to go up to a maximum LVR of 28 per cent.
“People are leaving taking 60 to 70 per cent of the facility as a lump sum and leaving the balance as an undrawn line of credit.”
“Those figures suggest to us that there is no problem with excess borrowing.”
RBS is Australia’s biggest reverse mortgage lender. Lynch estimates that it has a 40 per cent share of new business, followed by Commonwealth Bank and St George, each with about 25 per cent.
BankWest, Australian Seniors Finance, Suncorp, Newcastle Permanent and Police & Nurses Credit Union make up the balance.
RBS distributes through loan brokers and financial planners. It has 2,500 accredited intermediaries, 1,500 of whom have signed up in the past year.
“At the moment financial planners are coming to the product because they are looking to help their clients generate income from other assets while they try and restore their superannuation balances.”
Lynch said 10 to 15 per cent of sales are aged care loans – people borrowing against their homes to pay their aged care bond.
The RBS reverse mortgage portfolio is $250 million. It is internally funded.
Lynch said RBS was committed to the market and has imposed no funding constraints.
- Reverse mortgage lender takes ASIC to task
-
30 June 2009 6:58am
