Key Points:

Fears that a new type of financial product could harm the interests of elderly people have prompted the Government to consider regulating the reverse-mortgage sector.

The spectre of elderly people owing more to a bank than the total value of their home is just one of the problems raised in a working paper that also suggests financiers could prey on older people, enticing them to take out loans and use other financial products.

Senior Citizens Minister Ruth Dyson has called for submissions on home-equity conversion schemes or reverse mortgages, which allow the elderly to convert house equity into cash.

The Office for Senior Citizens wants submissions by March 31.

Ms Dyson said people were increasingly turning to the conversion schemes to use wealth from their homes to supplement their incomes.

She wants industry safeguards and the schemes to conform to acceptable practice, so has asked the office to develop standards for a code of practice.

But the newly formed Safe Home Equity Release Plans Association said it was already guarding consumers' needs by its code of practice to promote only safe schemes.

Its members are companies that offer reverse mortgages.

Secretary Rob Dowler said two businesses - Sentinel and Bluestone - had joined and he hoped more would follow soon.

But he welcomed the Government's discussion paper, saying the sector was in its infancy in New Zealand.

The paper discussed problems and canvassed setting up standards, stipulating rules for disputes resolution and imposing a cooling-off period for borrowers before they got the money.

It said Ms Dyson wanted to protect the interests of borrowers and provide peace of mind by ensuring the schemes met standards.

The paper said older people were wary of debt and had spent much of their life paying off mortgages to free themselves from financial worries in retirement.

The compounding interest on loans was "a significant deterrent" to many elderly because interest was charged on both the principal amount borrowed and on the accrued interest over the life of the loan.

It raised the possibility of people taking out loans that grew to become more than the value of their houses.

Many reverse-mortgage schemes had guarantees against this possibility but the paper asked if such guarantees should be mandatory.

The need for the elderly to be protected against financiers putting undue pressure on them, mergers and takeovers of financiers which could cause stress and confusion for borrowers, and the amount of consumer information made available to the elderly were other issues raised.

Last month, Australian reverse-mortgage provider Bluestone Equity Release launched in New Zealand hoping to significantly boost this market.

In July, Retirement Commissioner Diana Crossan said equity-release schemes could be a useful option for older asset-rich, income-poor New Zealanders but she was concerned by the lack of research into other options.

"People must investigate all of the equity-release options available."

Going backwards

Reverse-mortgage schemes:
* Available for people over 60, to convert house equity to cash.
* Payable on owners' death or sale of house.
* New Zealanders have $170 billion invested in housing.
* Reverse-mortgage industry in its infancy still and only a few thousand loans issued so far.
* Financiers issued $100 million reverse-mortgage loans last year.