Laurie Ferguson (Reid, Australian Labor Party, Shadow Minister for Consumer Affairs) Share this | Hansard source

Two of the previous speakers, the member for Mallee and the member for Melbourne Ports, referred to aspects of older Australia. Of course, that reflects in some degree the ageing demographic of our country. One of the realities is an increasing market for those companies that are less than altruistic, such as Macquarie Bank, St George, ABN AMRO et cetera, with their establishment and penetration of the reverse mortgage market. The truth is that people on fixed incomes will be hit harder by the change in taxation in this country with regard to indirect taxes through the GST.

Historically, ownership of the family home for many generations has been the foundation on which families have built their economic security, in some cases acting as a guarantee for the children’s spread into the home ownership market. Reduced access in this country to essential services such as health is another area where, increasingly, older people who need income see this new reverse mortgage market as attractive. The decline of services in the last decade or so has undermined that notion of security and now the family home is largely seen more as a social security safety net and less as a family asset which generations can rely on to build security and guarantee future prosperity.

With the ageing of the population, and more people keen to remain at home rather than go into residential nursing homes, there is once again a large and expanding market for such a concept—people needing income. That has been the background to the development of reverse mortgages. The Australian Consumers Association defines them as a way in which home owners aged 60 years and older can borrow money against the current value of their home and pay it back, including interest and fees, when they sell—or the estate can pay it back after their death. The advantages are pronounced. They allow a freeing up of money to maintain or increase people’s living standards. The money can be used for going on holiday, urgent repairs to the home or the purchase of a car. It also allows people to keep their financial independence without having to sell their home and move into something smaller.

The disadvantages essentially are far greater, especially if economic realities force people into these mortgages. A common feature is that there are expensive start-up payments of $1,000 to $3,000. Reverse mortgages can limit future access to funds if people wish to move closer to siblings or children or relocate to retirement villages, and they can significantly reduce capital. Research by the Australian Consumers Association shows that reverse mortgage contracts contain many clauses that limit individuals’ rights—for example, many allow the lender to make a range of changes without the agreement of the borrower. To this end, borrowers should not leave anything blank in the contract. The Australian Consumers Association found a clause allowing the lender to fill in blanks on behalf of the home owner.

There are also of course wide-ranging default clauses. When you are in default, the lender can stop payments if you are taking the loan as a regular income amount or even require immediate repayment of the whole loan. The person can be in default for minor contract breaches in the payment of council rates, gas, electricity et cetera. Reverse mortgages are targeted at elderly homeowners who will use the product until they die. It is foreseeable that at some point in the future the borrower could forget to pay a bill on time for council rates, strata fees, water or any other utility and so be in default.

Problems can occur if you want to sell your home, especially if at that time the value of the loan is higher than the value of the house. Before the sale, a lender usually requires you to ask for its approval. It will usually do a valuation and check that you are selling the property on the open market and getting market value. The jargon for this is ‘an orderly arms-length sale’. Problems can occur if the original valuation shows the house was worth more than the sale price. In the larger and more established UK market, inadequate reverse mortgage contracts and poorly designed products have caused consumers to be evicted from their homes.

Recent ACA research highlights grave concerns about the broad default clauses and limits to the no-negative equity guarantees in reverse mortgage contracts. Reverse mortgage contract traps have the potential to place elderly consumers in financial danger at a time when they may be frail and vulnerable. They now need to be cleaned up and made crystal clear to prevent excessive risks to borrowers in years to common. Clearly, there is a need for greater protection being offered to reverse mortgage borrowers. The industry requires greater regulatory attention and reform. (Time expired)

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