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Reverse mortgage market braces for regulation

New Federal Government regulations governing the reverse mortgage and equity release market could serve to reduce the market.

Under the new rules, coming into effect early next year, contracts allowing negative equity will be banned, and reverse mortgage providers will be required to produce a consumer statement to disclose the terms of the loan and what it means for borrowers.

As new regulations from the Australian Prudential Regulation Authority have made the industry less profitable, growth has slowed in the industry from up to 77% a year in the past five years to just 9% in more recent times, reports News.com.au.

The new rules could see a further reduction in a market from which several major lenders have already withdrawn, the report says.

However, industry peak body SEQUAL has maintained that the changes will merely bring all lenders in line with voluntary industry guidelines to which 95% of the market already submits.

The group doesn't believe the changes will affect the availability of funding, and says the slowdown in the market is due to consumers exercising a greater degree of caution, and not a reflection of Federal Government regulation.

Reverse mortgage and equity release loans are generally only available to people over the age of 60, and some have some of the highest interest rates and often carry additional fees.

By BN | 22 Nov 2010