Regulation of reverse mortgages in Australia
Reverse mortgages are subject to specific rules under the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act), the National Credit Code and the National Consumer Credit Protection Regulations 2010 (Cth) (NCCP Regulations).
These rules apply in addition to the general requirements for regulated credit contracts. They affect product design, responsible lending assessments, disclosure, contract terms, account administration and enforcement.
Key points
The special reverse mortgage provisions apply only if the underlying credit contract is regulated by the National Credit Code.
A reverse mortgage is defined by reference to whether the borrower’s liability may exceed the maximum credit amount without the borrower having to reduce it.
Lenders must make inquiries about the borrower’s possible future needs and any wish to retain equity for their estate.
Age-based loan-to-value ratio thresholds create a presumption of unsuitability. They are not statutory lending limits.
Equity projections must be provided before the lender makes its suitability assessment.
Special rules apply to protected occupants, permitted default events and enforcement.
The no negative equity guarantee generally limits the lender’s recovery to the adjusted market value of the mortgaged property.
When is a reverse mortgage regulated by the National Credit Code?
The reverse mortgage provisions apply only where the underlying credit contract is regulated by the National Credit Code.
A credit contract will generally be regulated where:
the debtor is a natural person or strata corporation;
a charge is made for providing the credit; and
the credit is provided, or intended to be provided, wholly or predominantly for personal, domestic or household purposes, certain residential property investment purposes, or refinancing credit used for those purposes.
The purpose of the credit remains relevant even where a loan is secured over the borrower’s home. For example, a loan used predominantly to provide capital to a commercial business may fall outside the National Credit Code.
Products outside the Code definition are not necessarily unregulated. Other provisions of the NCCP Act, the Australian Securities and Investments Commission Act 2001 (Cth), general law and equity may still apply.
Lenders should record the basis on which each product, and where necessary each transaction, is classified.
What is a reverse mortgage?
Section 13A of the National Credit Code defines a reverse mortgage by reference to an arrangement involving:
a credit contract other than a bridging finance contract;
a mortgage over a dwelling or land securing obligations under the credit contract; and
terms under which the debtor’s total liability may exceed the maximum amount of credit without the debtor being required to reduce the liability to or below that maximum.
The definition therefore turns on the contractual treatment of the accumulating debt. It is not enough that the product is marketed as an equity release loan or that repayments are deferred.
If the contract requires the borrower to reduce the balance whenever it exceeds the maximum credit amount, the arrangement may fall outside the definition. A provision of that kind may receive close scrutiny if the lender routinely waives it or never intends to enforce it.
The debtor and mortgagor need not be the same person. However, the National Credit Code generally prohibits a third-party mortgage unless the mortgagor is also a guarantor.
Responsible lending inquiries
The general responsible lending requirements apply to reverse mortgages.
A lender must make reasonable inquiries about the borrower’s financial situation, requirements and objectives, and take reasonable steps to verify the borrower’s financial situation. It must then assess whether the proposed contract is unsuitable.
For a reverse mortgage, regulation 28HA of the NCCP Regulations requires further inquiries about:
the borrower’s requirements and objectives in meeting possible future needs, including a possible need for aged care accommodation; and
whether the borrower wishes to leave equity in the property to their estate.
These are transaction-specific inquiries. A file note stating that the borrower has considered future needs is unlikely to be adequate without information showing what those needs may be and how the proposed loan affects them.
The lender should consider the amount and timing of each drawdown, the expected period of the loan, accumulated interest and fees, possible changes in the property’s value, other occupants and the equity likely to remain.
Age-based LVR thresholds
Regulation 28LC creates a rebuttable presumption that a reverse mortgage is unsuitable where the loan-to-value ratio (LVR) exceeds the applicable age-based threshold.
The threshold is:
15% where the youngest borrower is 55 or younger; and
15%, plus one percentage point for each year by which the youngest borrower is older than 55.
For example:
for a youngest borrower aged 60, the threshold is 20%;
for a youngest borrower aged 70, the threshold is 30%; and
for a youngest borrower aged 80, the threshold is 40%.
In a joint application, the age of the youngest borrower is used.
The threshold is not a statutory maximum LVR. If a proposed loan exceeds it, the contract is presumed to be unsuitable unless the contrary is proved. The lender will need evidence sufficient to rebut that presumption.
A loan below the threshold can still be unsuitable under the general responsible lending provisions. Lenders should not use the formula as a substitute for assessing the borrower’s requirements, objectives and financial circumstances.
Equity projections
Before making its suitability assessment, a lender must show or give the borrower projections of:
the future value of the mortgaged property;
the borrower’s increasing liability; and
the equity expected to remain over time.
The projections must be produced using the reverse mortgage calculator approved by the Australian Securities and Investments Commission (ASIC), in accordance with ASIC’s instructions. A printed copy must also be given to the borrower.
ASIC Information Sheet 185 requires projections for three scenarios:
annual property growth of 3%, using the applicable or default interest rate;
no property growth, using that interest rate; and
annual property growth of 3%, with the interest rate increased by two percentage points.
The sequence is important. The projections must be shown or given before the preliminary or final assessment of unsuitability is made.
Lenders should retain evidence of:
the information entered into the calculator;
the scenarios generated;
when and how the projections were provided;
the printed copy supplied to the borrower; and
any discussion prompted by the projections.
The MoneySmart reverse mortgage calculator was updated on 5 March 2026. Lenders using system integrations or standard operating procedures based on the calculator should check that those arrangements remain current. [asic.gov.au], [moneysmart.gov.au]
Information statement
A credit licensee that provides reverse mortgages or credit assistance for reverse mortgages must give the borrower the prescribed reverse mortgage information statement.
If the licensee’s website contains information about reverse mortgages, the statement must also be available through the website. A licensee must provide the statement in response to an inquiry where the consumer supplies their name and contact details.
The ASIC Credit (Updated Details for Prescribed Disclosure) Instrument 2026/122 commenced on 25 March 2026. It modifies the prescribed information statement by removing outdated content under the heading “Sources of other information”.
Lenders should check all versions of the statement held in:
application packs;
websites;
broker and intermediary portals;
document generation systems;
staff procedure manuals; and
archived templates that may still be used manually.
Independent legal advice is not a statutory precondition to entering a reverse mortgage. However, the prescribed disclosure recommends that the borrower obtain advice.
Representations about reverse mortgages
The NCCP Act restricts the use of the expression “reverse mortgage” and terms with a similar meaning.
A person must not describe a credit contract or mortgage as a reverse mortgage unless that description is accurate. The restriction also applies to representations that a contract or mortgage is not a reverse mortgage.
Marketing, product documents, scripts and intermediary material should use the term consistently with the statutory definition.
Protected occupants
A reverse mortgage contract may allow the borrower to nominate another person to occupy the property. This is referred to as a tenancy protection provision.
If the contract contains such a provision, it must allow the borrower to:
nominate a person who may occupy the property, alone or with others; and
revoke that nomination by notice to the lender.
While the nomination is in force, the nominated person must have the same rights against the lender to occupy the property as the borrower would have, apart from the borrower’s death or vacation of the property.
The lender must keep records of nominations and revocations.
If the contract does not contain a tenancy protection provision, prescribed written disclosure is required. The lender must give that disclosure before entering the contract. A credit assistance provider or other intermediary may have a separate obligation to give the disclosure before providing the relevant credit service.
Failure to comply with these requirements can constitute a strict liability offence.
Lenders should ensure that details of a protected occupant remain available to servicing and enforcement staff. The information should not be confined to the original application file.
Restrictions on default and enforcement terms
Section 18A of the National Credit Code prevents a reverse mortgage contract from allowing enforcement proceedings to begin on certain grounds.
The prohibited grounds include:
failure to tell the lender that another person occupies the property;
failure to provide evidence of occupation while the borrower occupies the property;
leaving the property unoccupied while it remains the borrower’s principal place of residence;
failure to pay an amount to a third party within three years after it became due;
failure to comply with a contractual provision that does not make clear how the borrower is to comply; and
breach of another credit contract with the same lender.
These restrictions should be reflected in both the contract and the lender’s servicing systems. Automated default rules should not issue notices or refer an account for enforcement based on a prohibited event.
The maximum statement period for a reverse mortgage is 12 months, whether or not the contract is a continuing credit contract.
No negative equity guarantee
The National Credit Code provides a statutory no negative equity guarantee.
The guarantee applies where:
the borrower’s accrued liability is greater than the adjusted market value of the property; and
the lender receives at least the adjusted market value, either from the borrower or from the proceeds of sale.
In that case, the borrower’s obligations under the credit contract are discharged and the mortgage must be discharged. If the lender receives more than the adjusted market value, it must pay the excess to the borrower.
Where the property has not been sold, its market value is generally determined by an accredited valuer within three months before the lender receives the discharge payment. Where it has been sold, the market value is generally the sale price.
Different treatment may apply where the value has been reduced because:
the borrower, or another occupant acting with the borrower’s consent, deliberately damaged the property;
the sale was not conducted in good faith; or
the sale was not conducted on fair and reasonable terms.
In those cases, an accredited valuation may be used to establish the market value at the time of sale.
The guarantee does not apply in the same way where the borrower engaged in fraud or made a relevant misrepresentation concerning the reverse mortgage.
Lenders should account for the guarantee in pricing, credit provisioning, valuation procedures and recoveries.
Additional enforcement steps
A lender must take additional steps before enforcing a reverse mortgage following a default notice.
During the period allowed to remedy the default, the lender must speak by telephone or in person with:
the borrower;
a practising lawyer representing the borrower; or
a person holding a relevant power of attorney.
The lender must confirm that the default notice was received and explain the consequences of failing to remedy the default. If contact cannot be made, the lender must be able to show reasonable efforts.
Further notice requirements apply where the lender seeks to recover negative equity on the basis of alleged fraud or misrepresentation.
These requirements should form part of the lender’s formal enforcement checklist. They should not depend on the individual staff member identifying the account as a reverse mortgage.
What should lenders do?
Confirm product classification. Record why the product falls within the National Credit Code and the statutory reverse mortgage definition.
Review the responsible lending process. Include specific inquiries about aged care, future accommodation, other expected costs and the borrower’s wish to retain equity for their estate.
Apply the LVR rules correctly. Use the age of the youngest borrower and treat the threshold as a presumption of unsuitability, not a safe harbour.
Control the order of the assessment. Do not complete the suitability assessment until the prescribed projections have been provided.
Check current disclosure documents. Confirm that the information statement reflects the ASIC instrument that commenced on 25 March 2026.
Review protected-occupant procedures. Keep nominations and revocations in a form accessible to servicing, hardship and enforcement staff.
Test default systems. Make sure prohibited events cannot produce automated enforcement action.
Check valuation and sale procedures. The no negative equity guarantee depends on the adjusted market value and the way in which the property is valued and sold.
Use a reverse mortgage enforcement checklist. Include the additional contact, notice and record-keeping requirements.
The reverse mortgage rules affect the whole life of the loan. Compliance cannot be dealt with only through pre-contract disclosure. The lender’s assessment, contract, servicing records, default systems and recovery process must operate consistently.
Get in touch if you would like to discuss how the reverse mortgage rules apply to your lending products or procedures.
This article is information only and is not legal advice.