Warning issued on equity release products

property mortgage interest rates executive director

21 October 2005
| By Ross Kelly |

With the value of the reverse mortgage market tipped to skyrocket, an industry association has warned investors to beware of substandard products and unscrupulous operators.

Not all providers are actually offering reverse mortgages, even though they claim to be, warns Keiren Dell, the executive director of the Senior Australians Equity Release Association of Lenders (Sequal).

“A pitfall of equity release schemes that are not reverse mortgages is that you must sell your house to pay back a loan.”

He said Sequal-accredited reverse mortgage products allow equity borrowed against a property to be paid back to the lender by other means.

Dell also warned against equity release products that require a customer to sell all or part of their property before they start receiving loan payments.

“Never sign anything over before you start borrowing — what if the provider goes bust?”

One such provider is currently the subject of a Government inquiry.

Investing in genuine, accredited, reverse mortgage products also has risks that consumers must understand.

“The main risks with reverse mortgages is that your house price doesn’t increase and interest rates go up.

“But one of the protections that all of our [Sequal] members put in place is that you will never owe more than the value of your house.”

A recent Trowbridge Deloitte report has predicted the reverse mortgage market will grow from $1 billion to at least $7 billion in the next couple of years.

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