Implementation of Reverse Mortgages for HDB Flats

Er Dr Lee Bee Wah asked the Minister for National Development (a) what is the progress of HDB's study on implementing reverse mortgages for HDB flats; (b) what are the benefits of this mortgage scheme over the current HDB Lease Buyback Scheme; and (c) whether HDB will consider allowing owners to make use of reverse mortgages on a case-by-case basis, especially for those who find this more suited for their needs.

The Ministry of National Development (MND) has completed its study on reverse mortgages for Housing and Development Board (HDB) flats. A reverse mortgage is a loan taken up by a property owner using his property as collateral. However, unlike a conventional mortgage, the borrower does not need to make cash repayment during the loan tenure. He only needs to repay the loan with accumulated interest upon loan termination or death, typically from the sales proceeds of his property. A reverse mortgage thus allows the property owner to unlock some equity while retaining the financial upside from any appreciation in property value.

A reverse mortgage is a complex financial product with inherent risks. First, as it does not require periodic cash repayments, the loan balance grows with interest. Second, the flat owner has to bear property risks. If the market value of the property becomes less than the outstanding loan, the owners may have to sell the property prematurely to repay the loan, resulting in them having to look for alternative accommodation at an old age.

We note that National Trades Union Congress (NTUC) Income offered reverse mortgage for HDB flats in 2006. As only 24 households signed up, NTUC Income has since stopped offering the product. The take-up overseas is also not high.

There are various other monetisation options for HDB flat owners today, such as the Lease Buyback Scheme (LBS). LBS is an equity sale scheme where flat owners sell the tail-end lease of their flat to HDB and retain a shorter lease. This enables elderly households to receive a lifelong stream of income to supplement their retirement income. As compared to reverse mortgage, while LBS owners cannot sell their flat in the open market, they do not face any property equity risks. We recently enhanced LBS in April 2015, and this was well received.

Besides LBS, elderly flat owners may take up the Silver Housing Bonus if they right-size to a 3-room or smaller flat. They also have other options of subletting either a bedroom or the entire flat and staying with their family members.

Thus, MND has no plans to introduce reverse mortgage for HDB flats for now. MND will continue to regularly review and adjust our various schemes to meet the needs of our elderly.