The reverse-mortgage market is in full retreat, with the fourth lender this year announcing it is pulling back.

Over Fifty Group announced last month it had suspended reverse-mortgage lending. It has $230 million in reverse mortgages on its books and says it will continue servicing existing customers.

This year, Macquarie Bank has withdrawn its reverse mortgage from the market and several of its partners, such as Resi Mortgage Corp, have also withdrawn their rebadged options.

Australian Seniors Finance stopped distribution through brokers and is now selling on a limited basis through direct and credit union partner channels. Bluestone took similar action, cutting off the broker channel and limiting distribution to its partners Westpac (in New Zealand only) and credit unions.

For people thinking about using a reverse mortgage to help fund their retirement, these developments mean there are fewer products to choose from. There are other issues to consider, too.

In the case of a standard home loan provided by a non-bank lender, the mortgage is held by an independent trustee. If the lender goes broke or withdraws service, the trustee has the power to arrange another lender to take over the servicing of the mortgage. There is no disruption to the borrower.

With a reverse mortgage, many borrowers enter into arrangements where they will establish a loan facility and then draw down the amount in a series of withdrawals over a period of time. It is a more serious matter for them if their lender goes out of business or withdraws services because they may find their planned drawdowns are disrupted.

According to a report on the reverse-mortgage market prepared by actuaries Trowbridge Deloitte, there were $466 million of reverse mortgage settlements last year. Ten per cent of those loans were taken in the form of regular income streams.

Of those who took a lump sum, the amount drawn down was about 75 per cent of the approved facility. So a lot of Australia's 337,000 reverse-mortgage borrowers are keeping some funds in reserve for later use.

Kieren Dell, the executive director of the Senior Australians Equity Release Association of Lenders, says his understanding is that all lenders have made commitments to allow existing borrowers to go ahead with planned drawdowns and to top up loans.

Dell says if borrowers are concerned, they should ask the lender whether the funding plan supporting the loan includes a guarantee that continuing funding will be available.

It is not all gloom in the market. ABN Amro's director of reverse mortgages, Martin Lynch, says his group remains committed to the market. He says reverse mortgages have established their place in the retiree finance market and demand will continue to grow. "The need has not gone away," he says.

"Because of rising interest rates, the lifestyle borrowers have disappeared. These are the people who don't need the money to buy a new car or repair the roof but would like some extra money for travel or to improve their quality of life in retirement in other ways."

Last November, Suncorp launched a reverse mortgage. The finance is provided by ABN Amro. "We have been pleased with the take-up," says Suncorp's general manager of lending, Tim Buckett. "Considering growth in the market has come down from the highs and given the current interest rate environment, we are pleased with results to date."

The Suncorp reverse mortgage is available to people older than 60 and has fixed or variable rates. The minimum loan is $10,000. Borrowers can take their money in a lump sum, receive monthly instalments or draw down when they choose.

Reverse mortgage product innovation

Reverse mortgage lender ABN Amro has enough confidence in the market, despite its recent downturn, to introduce new products. The banking industry research group Cannex rated ABN Amro and Bluestone as "standout" in a review of the market published in June.

* Investment property reverse mortgage This loan allows retirees to release equity from an investment property rather than the family home. Technically this is not a reverse mortgage because the loan has a fixed term of five or 20 years (strictly speaking a reverse mortgage lasts until the borrower dies or sells the property) but it serves the same purpose.

* Accommodation bond loan This is for people going into aged-care accommodation. It has a fixed term and a no-negative-equity guarantee.