The Australian Securities and Investments Commission (ASIC) recently published a report dealing with consumer experiences with reverse mortgages, and the document made for disturbing reading.

The bottom line is that reverse mortgages are complex products that are not well understood by many consumers.

By implication, this failure to understand reverse mortgages suggests that those providing the explanations are not doing a very good job.

The ASIC report identified a number of problem areas that it said had the “potential to hinder informed decisions and increase the risk of future problems”, including:

n a lack of familiarity with reverse mortgages;

n the complex nature of these financial products and their dissimilarity to other credit products;

n a reluctance to consider the risk of declining health in the future and the impact of this on financial needs; and

n children encouraging their older parents to take out a reverse mortgage or use the funds for the benefit of these children, in inappropriate circumstances.

It would, of course, be wrong to suggest that the financial services industry has not, via organisations such as the Senior Australians Equity Release Association of Lenders (Sequal), been trying to address the issues identified by ASIC, but there is clearly a long way to go.

What is more, financial planners and others involved in the selling of reverse mortgage products need to understand that the Australian media will not treat them sympathetically when and if consumers claim to have been disadvantaged or to have lost their homes.

Reverse mortgages will always be a tricky product within the Australian financial services landscape simply because this is a nation that holds home-ownership to be both an ideal and a right.

It is, of course, a measure of the amount of money that Australians have tied up in bricks and mortar that, while largely misunderstood, reverse mortgages have grown in popularity.

While those specialising in reverse mortgages will undoubtedly move to defend their approach and the validity of their products, they should nonetheless accept the ASIC report as a cautionary sign that there are things they need to be doing better.

Sequal has consistently sought to raise the bar on standards within the industry. Further work remains to be done.

– Mike Taylor