Take a magnifying glass to the small print of reverse mortgages

Now that the authorities have clamped down on the sale of high-risk structured products like minibonds, Hong Kong's banks are lobbying the government for permission to fleece the elderly in a whole new way: by selling them reverse mortgages.

Also known as equity release plans, reverse mortgages are one of those ideas that sound eminently reasonable at first but that begin to smell distinctly iffy once you start to pore over the small print.

In a nutshell, reverse mortgages allow elderly retirees to extract the cash locked up in the value of their homes. Typically, they take out a bank loan secured against their property, with the borrowed money paid out to them in the form of a monthly income.

The borrower makes no regular repayments. Instead, the loan - and the interest - are repaid in one go, either when the borrower sells his home or from the value of his estate when he dies.

That might sound sensible enough. Reverse mortgages allow the elderly to fund their retirement while remaining in the comfort of their own homes.

And at first, the idea sounds especially suitable for Hong Kong. The city has a growing army of elderly. Today, only 13 per cent of the population are aged over 65. But according to the Census and Statistics Department, by 2039 that proportion will have more than doubled to 28 per cent. As a result, over the next two decades, the number of working-age residents for each retiree will drop from more than five today to just two by 2039 (see the charts below).