ASIC has released a report into equity release products following increasing interest in 3 types: reverse mortgages, home reversion schemes, and shared appreciation mortgages (SAMs).

The Equity Release Products Report includes tips for consumers who may be considering equity release products.

ASIC warned that all equity release products are complex and, if used inappropriately or with poor advice, there are significant risks for consumers.

From the regulatory viewpoint, ASIC commented:

The existing regulatory system was not designed to address the issues raised by equity release products, which take the form of a credit arrangement but nevertheless have some of the attributes of an investment product.

At the product level, the principal vehicle for regulation of credit, the Uniform Consumer Credit Code (UCCC), does not provide for disclosure of risk, nor provide a mechanism for disclosing elements of the cost of the product, such as the forgoing of equity, that are not translatable into an interest rate. Finally it will not apply at all where the funds obtained are to be used for investment purposes.

The principal vehicle for the regulation of investment products, the Corporations Act 2001 (Corporations Act), has limited application to some home reversion and shared appreciation products, depending on their terms, but generally does not apply to reverse mortgage products.

UPDATE: APRA’s circular letter to ADI’s of 15 November 2005