05-358 ASIC report highlights the benefits and risks of equity release products
Wednesday 16 November 2005
The Australian Securities and Investments Commission (ASIC) has today released a report into equity release products following increasing interest in reverse mortgages, home reversion schemes, and shared appreciation mortgages (SAMs) from Australian consumers.
The Equity Release Products Report includes tips for consumers who may be considering equity release products.
ASIC's Executive Director of Consumer Protection, Mr Greg Tanzer, said that whilst equity release products can provide a useful means of releasing the equity in people's homes, they involve significant risks.
‘In the right circumstances, an equity release product may provide income for Australians in their later years, or offer younger people a way of accessing home finance. The most significant risk is the inappropriate use of products.’
‘Consumers need to consider whether an equity release product is suitable for them, and seek independent legal and financial advice before choosing a product,’ said Mr Tanzer.
ASIC’s report reveals a marked increase in the number of reverse mortgage providers (currently the most popular equity release products in Australia) – jumping from three to 15 in the 12 months to March 2005. A number of home reversion schemes and shared equity mortgages have also commenced or been announced.
‘Over the past 12 months, Australia has seen a rapid development of a range of equity release products. In the same period, we’ve seen one home reversion scheme, Money for Living, go into administration, highlighting the risks for consumers,’ said Mr Tanzer.
‘ASIC welcomes industry moves to address consumers concerns about these products including the development of a code of practice by reverse mortgage providers industry group SEQUAL and the efforts of individual product providers to develop innovative provisions that mitigate some of the risks for consumers.’
‘The growth of the market will depend on the industry earning consumer confidence and avoiding the misselling problems that have occurred at times overseas.’
‘ASIC will continue to work with industry to promote best practice and further reduce the risks for consumers while also monitoring the marketplace closely to identify misleading, deceptive, or unconscionable conduct in the sales of these products,’ Mr Tanzer said.
ASIC’s Equity Release Products Report includes a number of questions that consumers should ask when considering equity release products and the issues and features they should be aware of when asking these questions.
For further information on this checklist, or to obtain a copy of ASIC’s Equity Release Products Report, please visit ASIC’s website at www.asic.gov.au/reports.
Further details regarding equity release products are also available on ASIC’s consumer website, FIDO, at www.fido.gov.au/equityrelease.
Background
The three types of products currently or soon to be available in Australia and covered by the report are:
Reverse mortgages—the consumer borrows money against the equity in his or her home and the principal and interest is not repaid until the home is sold (usually when the consumer dies or voluntarily vacates the home).
Home reversion schemes—the consumer sells part or all of his or her home to a reversion company. The home is sold for less than its market price (typically between 35% and 60%), but the consumer can remain in the property until they die or voluntarily vacate the home. There are at least two types of home reversion schemes – a sale and lease model and a sale and mortgage model.
Shared appreciation mortgages (SAMs)—the consumer gives up the right to some of the capital gain on the property in return for paying reduced or no interest on that part of his or her borrowings.
End of release
Download a copy of the:
More information about reverse equity products for older people
FIDO Website: Printed 07/31/2010
