MND to study if reverse mortgages should be provided by private market or govt

The National Development Ministry (MND) will study whether reverse mortgages should be provided by the private market or by the government in future.

A reverse mortgage is a loan taken up by the owner using his property as collateral.

This loan is then repaid with interest upon termination of the loan, or death, typically from the sales proceeds of the property.

In Parliament on Monday, the government announced it has begun a “serious study” on reverse mortgages as another way for seniors to monetise their flat.

Reverse mortgages were previously introduced in 2006 by NTUC Income. But the company later stopped accepting new applicants in 2009 because of the low take-up rate. Channel NewsAsia understands that there were just 24 cases during that period.

The Housing and Development Board (HDB) said the low take-up rate could have been due to factors like a lack of familiarity with the scheme and a preference for the elderly to bequeath their flat to their children.

Mohamed Ismail, CEO of PropNex, said: “Generally speaking, Singaporeans (being) Asians are still home proud. Many of them would like to hold on to an asset.”

HDB also said the payouts determined by the provider at the time may not have been sufficiently attractive to the elderly.

There could have also been the fear of outliving the fixed tenure of a loan, a maximum of 28 years in the past, which would have meant owners would have to sell their property to repay the loan.

Associate Professor Chia Ngee Choon, from the Department of Economics at the National University of Singapore, said: “If the government is to be the provider, they have the advantage of economies of scale — they are better able to risk pool, they are also able to access a cheaper cost of fund for this product.”

MND noted that in the past, the government did not provide financial assistance or guarantees to commercial providers of reverse mortgages.

It said it had encouraged banks and financial institutions to offer reverse mortgages for HDB flats on commercial terms, based on providers’ evaluation of the costs and financial risks involved.

Associate Professor Chia said that for the scheme to work, it will also have to provide a lifetime payout.

She said: “The second expectation is that you will never have to have a negative equity. So at the point when the house is put up for sale, the accumulated loan that has been given to you should be able to be met by the value of the property at the time.”

Some property analysts said communication will be key.

Eugene Lim, key executive officer of ERA Realty Network, said: “At the end of the day, when you are at their age, a major concern is ‘I need money but I do not want my house to be taken away from me’.

“The key is to explain to them clearly how the scheme works and if there is no hidden agenda and it is explained clearly, then I think there will be a buy-in.

“At the end of the day, it is how the scheme is explained. It has to be explained in a very simple way, in a way they understand.”

The government plans to consult and engage industry partners, experts and the elderly as part of the study.

Source : Channel NewsAsia – 11 Mar 2014

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