Social Development Minister Ruth Dyson today said the Government was looking at a mandatory code of practice, to protect the elderly, for those offering reverse mortgages.
Ms Dyson told Parliament’s social services select committee that home equity releases, also known as reverse mortgages, were a good way for elderly people to get money.
Reverse mortgages are mostly taken up by pensioners who give title to all, or part, of their home in exchange for instalment payments of cash. The money is recovered from the pensioner’s estate when they die.
“I am not implying any of the home equity schemes are anything but reputable but I do believe we have an area of vulnerability, so we may well have some shonky behaviour in the future,” Ms Dyson said.
“It seemed to me we were leaving ourselves very vulnerable and leaving older people very vulnerable if we didn’t take action.”
The Office for Senior Citizens and providers had worked on the code.
Ms Dyson was in talks to see how the code could fit into Credit Contracts and Consumers Finance Act and Financial Products and Providers legislation.
“I am currently working with both Lianne Dalziel and Judith Tizard to look at how we fit that code into their commerce/financial agents provisions so that it can be a legislative requirement for home equity release schemes to have that code of practice before they are allowed to operate.
“I think we’ve kept ahead of any abuse of people.”
Property Finance, which collapsed last year, had controlled Lifestyle Securities — a major player in reverse mortgages, having lent about $40 million in that market.
At the time concerns were raised that people ran into problems by borrowing too much and not realising the effects of compounding interest.
Neither the Banking Ombudsman nor the Insurance and Savings Ombudsman had received any reverse mortgage complaints this year.
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