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Following is a question by the Hon Alan Leong and a reply by the Acting Secretary for Financial Services and the Treasury, Ms Julia Leung, in the Legislative Council today (January 5):
Question:
The Hong Kong Mortgage Corporation Limited earlier announced the launching of a pilot scheme on reverse mortgage (reverse mortgage scheme) as a measure to tackle the problem of ageing population. While the banking industry has expressed support for the scheme, some members of the public are worried that the reverse mortgage scheme might not be able to achieve the goal of "making use of residential properties to provide for the twilight years of the elderly". In this connection, will the Government inform this Council:
(a) given that some elderly people are worried that the buildings in which they are residing are too old, the appraised value of their properties will therefore be on the low side, the monthly annuity payments receivable under the reverse mortgage scheme will as a result be very small, coupled with the requirement that they have to bear the maintenance costs of the properties, thus it is difficult for the scheme to effectively support their post-retirement life, in the face of the above concerns of the elderly people, of the role the Government will play in implementing the reverse mortgage scheme so as to build up a reverse mortgage market which is fair and sustainable, and to ensure that the twilight years of the elderly people who participate in the scheme will be provided for;
(b) given that according to experience in foreign countries, quite a number of the elderly people participating in reverse mortgage schemes have fallen victim to investment pitfalls because they are not conversant with financial operations such as mortgage investment, etc. and have become heavily indebted eventually, what measures the Government will adopt to ensure that, in the processes of valuation, negotiation and renewal of terms with banks, elderly people who are eligible for the scheme will be protected in a sustained and reliable manner, so as to prevent them from falling victim to investment pitfalls; and
(c) given that the purchasing power of the annuity payments received by the elderly people under the reverse mortgage scheme will diminish as a result of inflation, whether the Government will consider linking the scheme with inflation, so as to better protect the elderly; if it will, of the details; if not, the reasons for that?
Reply:
President,
The reverse mortgage pilot scheme to be launched by the Hong Kong Mortgage Corporation Limited (HKMC) is in essence a financial arrangement. It aims to provide the elderly with an additional choice, so that they can use their properties as collateral to borrow reverse mortgage loans from banks and receive a fixed amount of cash loan every month (i.e. annuity payment) for a fixed period or over their lifetime as supplementary funds to improve their standard of living. Meanwhile, the elderly can continue to live in their properties for the rest of their lives.
According to a survey conducted by the HKMC with 1,005 elderly people a few months ago, about 44% of the respondents supported the introduction of reverse mortgage in Hong Kong and almost a quarter of the respondents indicated that they would consider participating in reverse mortgage. It shows that there is demand for reverse mortgage in Hong Kong.
I will address the three parts of the question raised by Hon Leong one by one.
(a) For part (a), reverse mortgage is a voluntary financial arrangement which provides the elderly with an additional choice. The pilot scheme to be launched by the HKMC will operate on the basis of market orientation and prudent commercial principles. The HKMC will strike a balance between the needs of the elderly and the risks to the banks as well as the insurer (i.e. the HKMC) when developing the details of the reverse mortgage pilot scheme. Apart from examining overseas experience in reverse mortgage, it will take into account the unique circumstances in Hong Kong, including the higher volatility of local property prices, the increasing life expectancy in Hong Kong, the possibility of the currently extremely low interest rate going up, etc. Under the reverse mortgage pilot scheme, the HKMC will act as the insurer to reduce the risks to the banks and the elderly. This can help encourage banks to explore the new market of reverse mortgage.
Under the reverse mortgage pilot scheme, there will be established procedures for conducting property valuation, which will be done by recognised professional surveyors. With regard to property maintenance, the elderly will still have to bear the responsibility and the cost of it even if they do not apply for reverse mortgage. The Government and some other non-government or public organisations (e.g. the Hong Kong Housing Society and the Urban Renewal Authority) currently provide different schemes to help needy homeowners conduct property maintenance.
The Government will continue to keep a close eye on the housing needs of the elderly, and promote and encourage the implementation of measures and policies on tackling the problem of ageing population and the maintenance as well as renewal of buildings.
(b) For part (b) of the question, first of all, it is necessary to clarify again that reverse mortgage is just a special mortgage loan arrangement which does not incur any investment gain or loss. The amount of the appraised value of the properties will of course affect the amount of annuity payment. However, any surplus after deducting the outstanding loan principal, accrued interest, insurance premium and other applicable fees from the proceeds from the property disposal will be given to the inheritor(s) of the elderly. On the contrary, if the proceeds from the property disposal cannot cover the outstanding loan balance for any reasons, the HKMC will compensate the shortfall to the banks so that the elderly and their families will not have to bear the burden. In addition, once the amount of annuity payment has been confirmed, it will not be reduced or suspended over the term of the reverse mortgage so as to provide a good protection to the elderly. The HKMC is also studying the possibility of engaging independent professionals to offer pre-sale counselling services for the reverse mortgage applicants, so that the elderly can fully understand their rights and obligations before drawing a reverse mortgage loan. The more successful reverse mortgage schemes in other countries also provide such counselling arrangement. The HKMC is now in discussion with the Law Society of Hong Kong on the development of an effective module to engage lawyers to help interested elderly understand the details of the pilot scheme.
(c) For part (c) of the question, in developing the details of the reverse mortgage pilot scheme, the HKMC mainly takes into account the long-term trend and volatility of local property prices, the trend of interest rate, the life expectancy of the elderly population, etc. The amount of annuity payment, once confirmed, will not and should not be increased or decreased over the term of the reverse mortgage. Otherwise, it will be hard to provide a stable and reliable stream of cash loan (i.e. annuity payment) for the elderly to improve their standard of living while remaining in their residence. At the moment, the HKMC has no plan to offer a reverse mortgage scheme with floating annuity payment linked with inflation rate.
Ends/Wednesday, January 5, 2011
Issued at HKT 12:50
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