Sequal moves to fix break fee disclosure
The Senior Australians Equity Release Association of Lenders (Sequal) has undertaken to develop a generic Product Disclosure Document (PDS) that will be distributed by its members.
The PDS is partly motivated by pressure from the National Information Centre on Retirement Investments (NICRI) for changes to the disclosure of fixed rate break fees in equity release/reverse mortgage PDSs.
NICRI made the call in a submission late last month to the Retirement Income Panel, which is being chaired by Federal Treasury Secretary Ken Henry as part of Treasury’s Australia Future Tax Review.
The submission, which calls for examples of various break fee scenarios to be included in PDSs, was made on the strength of feedback to NICRI’s new consumer helpline, the Equity Release/Reverse Mortgage Information Service.
Sequal executive director Kevin Conlon said the PDS would incorporate some examples of fixed rate loan break fees, “as current market conditions have brought this top of mind”.
He said the PDS would be “introduced to all Sequal members as a guideline to our code of conduct, notwithstanding that no regulatory obligation exists”.
“Consumers can be confident they will be getting the same level of disclosure regardless of which Sequal member they select as a provider.”
The PDS, which he said will “ideally be between four or six pages long”, will be released shortly to Sequal members for approval, Conlon said.
NICRI executive director Wendy Schilg said the NICRI submission to Treasury was not intended to suggest that reverse mortgage providers were not disclosing break fees in their PDSs.
“Our submission merely recommends that PDSs could possibly include some examples of break fees on different time periods to avoid any confusion for investors.”
Schilg emphasised that the submission only concerned investors with a fixed interest option over reverse mortgage/equity release products and was not necessarily an issue about break fees.
“It’s an issue only for investors who have locked in to a fixed interest rate on their reverse mortgage and it only applies for the period of that mortgage.
“However, some investors have taken a 20-year or even a lifetime reverse mortgage out and are only two years into it, and they are going to have fairly large break fees at the moment.”
In the cases reported to the NICRI helpline since its launch in February this year, break fees incurred by investors have been ranged from a minimum of $12,000 to $50,000.
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