At the age of 82, Leonard Wolfenden was shocked to realise that when he sold his family home – a property he had paid off decades earlier – he would be entitled to keep less than half of the proceeds.
The rest of the money – $302,230 out of the sale price of $560,000 – would go to a company called Homesafe.
“He was dumbfounded,” says his daughter, Leanne Mackey. “He never really got over it.”
Three years ago Leanne was helping her father prepare his three-bedroom home in Laverton, south-west Melbourne, for sale. Leonard was no longer driving and Leanne had found him a one-bedroom apartment that was walking distance to the golf club that formed the heart of his social life, where he could continue living independently.
“He mentioned to me that he had got a small ‘loan’ … and he showed me some paperwork. It was from a company called Homesafe, who, at that time, I’d never heard of,” she says.
Homesafe Wealth Release does not in fact provide loans, it is a home reversion company – the only one in Australia – which allows people over the age of 60, who own a home in certain suburbs of Sydney and Melbourne, to get money upfront in exchange for a portion of the sale proceeds when their property eventually sells.
Homesafe says its contracts very clearly spell out the percentage of the sale proceeds that it will be entitled to when the house sells.
Leonard, who died earlier this year, was given $81,810 by the company over two instalments in 2008 and 2009, when his house was valued at $230,000 and $280,000 respectively. In 2021, Leanne contacted Homesafe to find out how much the company would be entitled to out of the proceeds of a potential sale.
“The payout figure that was given to me was $264,589… And I was absolutely shocked. I was lost for words,” she says.
The amount that Homesafe eventually took was even higher. They ended up receiving $302,230, which was 54% of the sale price, and three-and-a-half times the amount that Homesafe originally paid to Leonard 13 years earlier.
“[When] I told [my father] what the figure was, he couldn’t even comprehend it. He had no idea that’s what he was going to have to pay,” Leanne says.
Leanne admits her father was not good with money and throughout his life did not deal with the household bills or finances. “My mum did all that,” she says.
After Leanne’s mother died, “We had to help him with all these [things] because he didn’t know how to pay anything”, says Leanne’s husband, Wayne. “He was very naive when it came to anything in relation to business.”
Leonard signed up with Homesafe without consulting Leanne or Wayne.
Homesafe said Leonard had been in touch with them twice in the three years before he sold his home, was “aware of the relevant sale outcomes” and did not express concern. They said they spoke to him at length and that he also engaged an independent solicitor.
His is one of half a dozen cases Guardian Australia has uncovered as part of an investigation into Homesafe and whether its customers fully understand what they are signing up to.
The scheme has been a joint venture of Bendigo Bank and Athy Pty Ltd, a company owned by actuary and the designer of the Homesafe model, Peter Szabo.
Homesafe has executed more than 6,300 contracts with older Australians who own homes in Sydney and Melbourne since it started in 2005. The company said it had thousands of satisfied clients, some of whom were repeat customers. In customer satisfaction surveys, many said they had a positive experience in their dealings with Homesafe.
Last year, Bendigo Bank announced it would be divesting its interest in Homesafe by the end of June and would no longer be funding any new contracts. As yet, Homesafe has not announced a new backer.
‘An opaque product’
When Guardian Australia first approached Katja Hanewald, an economist who specialises in insurance and ageing, and asked her to review several Homesafe case studies, she said she did not know much about the company.
A day later, when we meet at her office in the University of New South Wales school of business, it’s a different story. Hanewald pulls out a notebook of cramped, handwritten notes and says: “I have been looking at this more closely and I have some concerns.”
Hanewald has previously shared academic research with the household loan and reverse mortgage provider Household Capital. She told Guardian Australia she does not benefit commercially from, or have a professional contract with, the company. In 2019, Household Capital provided $11,000 of research funding to Hanewald and a colleague via a competitive scheme from UNSW Business School.
She is keen to clarify she does not think home reversion products are bad in principle.
But she believes Homesafe is an “opaque product”. In her view the contracts are complex, the share of proceeds the company is entitled to compared with the amount they outlay seems “high”, and there is a lack of clarity about how much equity people will relinquish in their homes at the point of sale.
“It looks like an arrangement that’s more difficult to understand and it looks more expensive than other options,” she says.
When a customer signs up to the Homesafe scheme, the contract makes it clear what percentage of the sale proceeds the company will take if the property is sold at the end of the contract – a calculation Homesafe makes based on how long the client is expected to live.
What is less clear is what happens if the owner sells early, for example if they need to downsize or move into aged care.
“[It’s] difficult for consumers to … work out how much exactly they will be giving up if they decide to complete the contract at different points in time,” Hanewald says.
To illustrate, she unpacks the case of Ron Woodward, 84, and Cathleen Woodward, 81, who took out a contract with Homesafe in 2008, when they were experiencing financial stress. At the time, Homesafe valued the Woodwards’ home at $690,000.
In exchange for $199,248 (roughly 29% of Homesafe’s property valuation, which was commissioned from an independent company), Ron and Cathleen signed a deal that entitled Homesafe to 65% of the future proceeds when their house sold, if they saw the contract through to its conclusion in 2035, 27 years after signing. By this point, Ron would have been 95 and Cathleen 92.
Hanewald says that, in her view, this 65% figure was “high” compared with the initial advance but clearly spelled out in the paperwork.
“It’s not hidden,” she says. “They should be aware that 65% is the maximum that could be expected.”
Where the issue arises, she says, is that Homesafe’s model means that if someone sells their property before the end of the contract, they are entitled to an early sale rebate, meaning Homesafe takes a smaller percentage of the sale proceeds.
“So what’s clear is that the max they get is 65% and that’s a high number. Then Homesafe say, ‘we will calculate some rebates’. And then it gets confusing, right? It’s really hard to work out what the rebates are.
“In light of how complex this particular arrangement is … giving that to an 80-year-old or a 90-year-old is potentially problematic. It raises concerns for me,” she says.
Sitting in front of a gas heater at his home in West Pymble in Sydney’s north, Ron Woodward says this precisely describes his situation.
“Basically, what I thought at the time was that the early sale rebate protects me from [Homesafe taking 65%], it’ll only apply if we have the contract for 27 years at which time I would have been 90 or something,” he says.
“I thought … they were just saying ‘Look this is what happens in 27 years’ time, but in the interim you will get back a very large percentage of the 65%’.”
Ron approached Homesafe in June 2022, 14 years after he signed the contract, to ask them to provide an estimate of what Homesafe would be entitled to if he and Cathleen sold their home for $2.2m. Homesafe wrote back estimating the company would be entitled to $1,019,227, or 47% of the property’s sale price. This figure is five times the amount the Woodwards were given by Homesafe.
Ron describes entering into a deal with Homesafe as the “second biggest mistake of my life”, second only to investing a large sum of money with Alan Bond in the 1980s.
Hanewald says it makes sense that the percentage Homesafe takes of the sale proceeds is higher than what they pay out because they “take risks” – such as house prices growing at a lower than expected rate, or the person living longer than predicted in their contract. “But it seems a large difference, even with rebates,” she says.
Homesafe said that, before a contract is signed, the company provides potential customers with multiple scenarios showing the potential rebate figure if they sell at different times.
The Guardian has seen examples of these documents given to clients, although the documents make it clear the figures are “illustrative” and “there is no suggestion that these assumptions will eventuate and that the results will be as shown”.
In a statement, Homesafe acknowledged that “the rebate is … unknown as it depends on when the sale takes place”, but added, “our customers can ask us for estimate discharge calculations at any time throughout the life of the contract and will receive this estimate before they sell the home”.
‘I can’t reproduce their numbers’
Prof Michael Sherris is perplexed. Sitting in his home in the north of Sydney, the emeritus professor at the School of Risk and Actuarial Studies at the University of New South Wales says: “I don’t know where the numbers they get come from.”
Guardian Australia has asked Sherris, who is a globally recognised actuary, to examine the mathematical formulas used by Homesafe to calculate their potential share of the profits.
“It’s obtuse,” he says. “I can’t reproduce their numbers. I know conceptually what they’re doing … but I take their formula and put the numbers in from those examples you’ve got. I can’t get their number.”
Sherris spent hours over several days examining Homesafe paperwork to try to understand the formulas they use to make their calculations.
When Sherris built his own calculator, in a spreadsheet, to calculate the early sale rebate that one case study would be entitled to, and then worked it out a second time from first principles, he consistently got a number roughly $50,000 higher than the amount that Homesafe estimated they would give to that customer for selling early.
“If I was a financial adviser, advising people who wanted to unlock equity in their house, then I would not encourage people [to take up this deal],” he says.
“On the face of it, [Homesafe] has some nice advantages,” Sherris says. “You limit the percentage of your house you’re giving up, so you know what it is compared to a reverse mortgage. But the financial assumptions underlying the calculations aren’t clear.”
Homesafe rejected Sherris’ calculations, saying “the workings provided do not represent how the Homesafe platform works”.
The company said it provided customers with “the formulae which sits behind the workings of the calculations inside the contract for transparency”, and that its scheme was “not a typical home-reversion product”.
“In developing the Homesafe contract, Homesafe ensured that it provided additional protections for the homeowner that conventional home reversions do not. This includes maintaining ownership of the property with the customer, protecting their life tenancy in the home, and providing rebates for an early sale which seek to provide a fair outcome for both parties.”
Many of the experts Guardian Australia spoke to raised the complex nature of the contract as being of particular concern given the age of some of Homesafe’s customers. The oldest Homesafe client that Guardian Australia has seen documentation for was a man who signed a contract with them for about $60,000 at the age of 89.
“It’s an ethical concern,” Sherris says. “You’ve got these older customers … they’re just having to take for granted the numbers you are providing to them without any real explanation as to why those numbers are what they are.”
Homesafe denied that customers had to take the numbers for granted, saying that “all Homesafe customers must seek independent legal advice in relation to the contract before signing”.
“Homesafe respects the rights of older Australians to make their own decisions in accordance with their competency. Being older does not, and should not, of itself mean you are incompetent or have less capacity to make decisions about your own life and affairs, including entering contracts.”
From $250,000 to $944,000 in eight years
“Mum and Dad were running out of cash,” says Cameron, who asked not to use his real name. “He retired and some investments didn’t do so well.
“Dad pulled me aside and said ‘we’re thinking about taking money out of the house, your mum doesn’t really want to go into a unit but we’ve got no money left’.”
“I thought ‘you know, it’s your money, you’ve given us everything we’ve wanted all our lives, you do what you want with it’.”
His parents signed up to Homesafe in 2015.
Multiple financial experts who spoke to Guardian Australia said a simple way to understand whether Homesafe offers a good deal was to compare the numbers with how much an individual would have had to repay if they took out a simple reverse mortgage.
Guardian Australia ran the numbers and asked two financial experts to do the same, on four cases, with which Guardian Australia is aware of both the initial advance figure and the final payout – or estimated payout – figure.
In all of these cases, the customer would have been better off financially in a reverse mortgage. In some cases, they may not have been able to access such a large initial advance, because reverse mortgages have restrictions on lending amounts and reverse mortgage providers have historically been averse to making large lump sum payments.
In the case of Cameron’s parents, they would have been better off by more than $400,000 if they had taken out a reverse mortgage.
The couple received $250,000 from Homesafe in 2015. Just a year later Cameron’s father died.
“They had a very old school relationship where the husband took control of the finances,” he says. “Mum was always saying I don’t really know what’s going on.”
Cameron’s mother died in 2023. The Homesafe deal and the uncertainty of the payout figure hung over her through her last years, he says.
“Mum would always bring it up: ‘I don’t know how much this payout’s going to be, when I go,’” he said. After she died and the property was sold, Homesafe took $944,000 from the sale, nearly four times the amount that they had advanced the couple eight years earlier, Cameron says. This was about 40% of the property’s sale price.
A lot of this profit for Homesafe came because the property dramatically increased in value from the time the couple entered into the contract in 2015, when Homesafe valued their property at around $1m, and 2023, when it sold for more than $2.3m.
“No one put a gun to their head and made them do it, it was all their choice,” Cameron says, and he is grateful his parents got to stay in their family home until the end. But he thinks people should be “fully aware of what they’re getting into”.
“We had the greatest parents we know, and they gave us everything we ever needed. But for [an advance of] $250,000 in eight years, [Homesafe] get $944,000.
“It left a bitter taste in my mouth.”
Homesafe said that its product had some advantages over a reverse mortgage, including that there is a capped maximum share of proceeds that Homesafe will take, that if the property value falls, “the Homesafe sale interest would move with the property value” and that, unlike with a reverse mortgage, the Homesafe deal is unaffected by interest rate rises.
A question of competence
As people enter their 70s and 80s, their capacity for understanding complex financial contracts declines, says Susan Thorp, a professor of finance at the University of Sydney. Unfortunately, she says, “their confidence in making a decision about those sorts of contracts does not necessarily decline, so they’re particularly vulnerable”.
This is particularly stark if the contract relates to a new and unfamiliar financial product.
Research from the ARC Centre of Excellence in Population Ageing Research in 2022 found that about 5% to 20% of the population aged 60 and over is estimated to have mild cognitive impairment that was “not severe enough to disrupt daily life but is likely to affect complex financial decisions”.
Homesafe’s Szabo said in a 2016 interview that many people are “not familiar with equity release products, and the time in their lives when they need them is perhaps not the time when they feel confident making big financial decisions”.
It is a requirement that, before someone signs a Homesafe contract, they first receive legal advice.
One solicitor the Guardian spoke to said he had reviewed many Homesafe contracts over the years and while he had signed off on them in cases where he believed “the customer was clearly understanding of the general nature of the proposed agreement and the risks and benefits”, he added it was “difficult” for customers to work out exactly how much money the company would take.
Jason Coppard, another solicitor, told the Guardian he refuses to sign off on Homesafe contracts “because I can’t determine how much money [the client is] going to get”.
Coppard says that when clients first started coming to him about Homesafe roughly 15 years ago, he called the company to ask for clarity about the contract, how the formula was used to calculate the early sale rebate and the share of proceeds Homesafe was entitled to, but was told that they couldn’t provide him with more information.
“I don’t do Homesafe,” he says.
Homesafe said it does not agree with the views of the solicitors quoted in the story, saying that “many thousands of solicitors have reviewed the documents and explained the contract to their clients. We also provide customer solicitors with support and worked examples to assist them to provide advice to their clients.”
The executive officer of Financial Counselling Victoria, Zyl Hovenga-Wauchope, warned that it is financial, not legal advice, that people really need before signing up to a deal like this one.
“You need to be given advice about what options you have and if this is going to be in your financial interest. The lawyers would say ‘this contract does what you’ve said you want it to do’ they wouldn’t be in a position to say ‘this isn’t the best financial product for you based on your circumstances’.”
Homesafe said that all its customers are “encouraged to seek financial advice and this request is acknowledged by the customer in writing”.
Value v price
Speaking from the lounge room of her daughter’s Melbourne home, Gillian Davidson, a former dancer, struggles to remember the details of the Homesafe deal she signed in 2014. The 89-year-old knows she got a lump sum of $250,000 to give to her son to help him buy a home, but doesn’t remember what she understood Homesafe would receive in return.
“I don’t remember the details of that kind of thing,” she says. “It might be my ancient age.” But she is adamant that she is not the sort of person to enter into an unfair deal. “You know, I’m not a fool … I seem to recall, whatever it was, it felt, truthfully, it felt like it wasn’t something that was a scam.”
Gillian is now preparing to sell her home, with help from her daughter, Alinta, who she lives with. One concern Alinta has is that when they sell the property, Homesafe might take its cut of the sale proceeds not from the actual sale price of the house but from a higher number provided to them by a valuation company.
Valuations are crucial for the workings of the Homesafe contract. When someone signs up with Homesafe, the company commissions a valuation of the property, which is paid for by the customer.
That valuation figure is used as part of the calculations to work out what percentage of the share of future sales proceeds Homesafe will be entitled to. Customers do not have a say in which valuation company is used, although they can pay for a separate valuation, whose findings will be considered by the valuer appointed by Homesafe.
Some of the customers and their families spoken to by the Guardian took issue with the initial valuation figure provided by Homesafe, which they felt was low, meaning they would have to sacrifice more of the sale proceeds in order to get the advance they wanted.
Homesafe said its customers can “provide alternative comparable sales data for the valuer to consider if they are not comfortable with the outcome of the report”. The valuation companies it uses are “independent firms” appointed “following a tender process”.
Valuations come into play at the other end of the Homesafe deal as well. When someone decides to sell, Homesafe commissions another valuation (also paid for by the customer) and then requires that the sale price accepted by the seller is at least as high as this valuation.
If the seller cannot get a sale price as high as the second valuation figure, Homesafe reserves the right to take its share of proceeds from the higher valuation figure, rather than the price the property actually sold for, though this provision is not spelled out in the contract.
Alinta recently had her mother’s house valued at $1.66m, which means if it sold now for that price, Homesafe would receive $757,000, or 45.57% of the sold price. They are yet to have the valuation from the company chosen by Homesafe, but Alinta is worried that if it comes back high, and they are not able to sell for the higher figure, Homesafe will take an even bigger amount.
Alinta and Gillian asked Homesafe about this provision.
In an email response, the company said: “If [the valuer] consider the price the vendor wishes to accept is below comparable values of similar property sales on or around the same sale date, Homesafe may elect to permit the sale to proceed by calculating its discharge calculation based on the minimum market valuation figure rather than the price accepted by the vendor.”
Homesafe said that there had been very few occurrences over 19 years where a customer has sold the home for less than the market value determined by an independent valuer.
Sherris says this practice was concerning: “You can’t rely on valuations … If you sell it in a proper market-based sales situation, then that’s the price.”
‘No overarching regulation’
Concerned about his Homesafe contract and looking for options, Ron Woodward wrote to the Australian Securities and Investments Commission (Asic), which regulates financial products and services. But he was told Homesafe did not fall under its authority.
Instead, the scheme is classed as a real estate product and therefore falls under state and territory real estate laws.
An Asic spokesperson told the Guardian: “In some cases, a product, while looking very similar in effect/end result, might have particular features that bring it outside Asic’s regulatory remit.”
Hanewald says a real estate transaction “comes with less consumer protection”.
Speaking generally about financial products, she says, “there’s more rules about responsible lending, how you have to explain the product, there’s more provisions against elder abuse and lending to people who are not fully understanding the implications of that financial decision”.
“[With] reverse mortgages, they would have to have an information statement about the product. They would have to give projections about what would it cost.
‘It would’ve been good for him’
Left with just $235,000 from the sale of his property (after paying his solicitor’s bill, Homesafe’s solicitor’s fees and PEXA fees and outstanding rates on the property), Leonard couldn’t afford the apartment Leanne had found for him.
He ended up having to move in with Leanne and Wayne and lost touch with his friends, the golf club and his “long-term lady friend”, she says.
“He could’ve stayed living on his own for a lot longer … I’m actually a community nurse, and I help people with home care packages, so I know how important it is for the elderly to be independent in their own homes.
“I just feel he missed out on all of that,” she says.
Leonard also had to stay on a strict budget, because he did not know how many years the $235,000 would have to last him, or if he would need the money as a deposit for a nursing home place.
“So basically he still had to watch his pennies, because the pension’s $1,090 a fortnight, which is not much. It would’ve been nice for him to enjoy himself.”
Leanne imagines another reality, in which Leonard had got the full sale proceeds and been able to buy the apartment.
“He could’ve stayed living on his own for a lot longer,” she said. “It would’ve been good for him to be set up in his little unit, pottering down to the shops. It would’ve been a good option for him.
“But anyway,” she says, shaking off the thought. “It didn’t happen.”
A spokesperson for Bendigo and Adelaide Bank said: “The bank reviews all parts of its business regularly and, as a result of this, identified the opportunity to reduce complexity and simplify its business by exiting the [Homesafe] partnership.
“In December 2023, Bendigo and Adelaide Bank announced that it would divest its shareholding in the business. The bank no longer has any interest in the Homesafe business.”
Do you know more? Email kate.lyons@theguardian.com