One of the many interesting recommendations in the Productivity Commission’s Caring for Older Australians Inquiry report is Recommendation 8.1:
The Australian Government should establish a Government-backed Australian Aged Care Home Credit scheme to assist older Australians to make a co-contribution to the costs of their aged care and support.
• Under the scheme, eligible individuals would receive a Government-backed line of credit secured against their principal residence, or their share of that residence.
• In establishing the line of credit, the Australian Seniors Gateway Agency would arrange a valuation of the principal residence and specify a minimum level of equity for the person’s share of the home. The individual could draw progressively down to that minimum to fund their aged care costs. The drawdown on the line of credit would be subject to interest charged at the consumer price index. If the outstanding balance and accumulated interest reached the minimum limit set by the Australian Seniors Gateway Agency, the interest rate would fall to zero, and no further draw down would be permitted under the scheme.
• The outstanding balance of the line of credit would become repayable upon the disposition of the former principal residence including upon the death of the individual, except where there is a protected person permanently residing in the former principal residence.
• In the latter circumstances, the outstanding balance of the line of credit would be repayable when the protected person ceases to permanently reside in that
former principal residence, or ceases to be a protected person. (Protected person is defined in the Aged Care Act 1997 and includes, for example, a partner, dependent child or a carer.)
The report concluded that equity release products can be complex and there is nervousness about current privately offered products.
Proposals for regulation of reverse mortgages are contained in the draft NCCP Amendment Bill discussed here.