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Global demand for $270m securitisation of ‘flourishing’ reverse mortgages
Household Capital claims there is such “steadily growing” interest from institutional investors in these issuances that it plans to tap the market annually.
Strong backing from global insurance, superannuation, banking and credit fund investors for reverse mortgage specialist Household Capital’s $270 million securitisation’s reflects underlying institutional investor confidence in the sector, according to industry specialists.
The mortgage securitisation, which was dual rated by Moody’s and S&P Global, was based on an underlying portfolio loan-to-value ratio of less than 25 per cent.
David Cash (pictured), Household Capital’s chief risk officer, says: “That demand came from Australia, UK, US and Asian investors from across the investing spectrum.
“Those investors ultimately represent trillions of dollars of investing capacity, and it is clear to us that demand and pricing of Australian reverse mortgage securitisations will only improve over time. It is evidence that the Australian reverse mortgage market is set to flourish over the next few years.”
Cash says the volume of new reverse mortgage loans issued across the sector is expected to more than double over the next five years because of rising demand from asset-rich, cash-poor retirees and growing interest from the major retail brokers, according to industry analysis.
He says total new loan volumes for the sector, which trebled to $750 million in the five years from 2020, will reach between $1.5 billion and $2 billion by 2030.
Michelle Winzer, chief executive of rival provider Heartland Bank, expects growth to be even higher.
“Our reverse mortgage portfolio is on track for 18 per cent growth this financial year, reflecting the accelerating momentum we’re seeing in the market.
“This is driven by clear demographic and economic factors: an ageing population seeking financial flexibility, rising cost-of-living pressures and greater awareness of reverse mortgages”
Heartland’s most recent securitisation was in 2020 for $142 million. Last year it acquired Challenger Bank, transforming its funding model by combining wholesale and deposits.
Deposits currently constitute around 70 per cent of funding and is expected to rise above 80 per cent by the end of this financial year.
Winzer adds: “Securitisation is a strategic tool for diversifying our funding and managing the long-term stability of our balance sheet. While customer deposits are the bedrock of our funding, and the largest source, they are typically shorter term. Securitisation allows us to secure longer-term funding that better matches the profile of our assets like reverse mortgages.”
Overseas’ reverse mortgage markets are also rebounding with the value of new loans equivalent to about $5 billion in the UK and $1.4 billion in Canada after a hiatus following the GFC.
Cash says its second reverse mortgage securitisation in two years shows there is “steadily growing” interest in the issuances from institutional investors that it plans to tap with annual securitisations that “we would expect to steadily grow in size as our originations grow”.
Analysts also believe the expansion of a proprietary reverse mortgage market will continue to attract a broader investor base, increasing market depth and liquidity.
Household Capital CEO Josh Funder says: “There are about five million Baby Boomers (born between 1946 and 1964) who own $1.3 trillion in housing and don’t have enough super for their retirement. That is the equation that means we can deliver strong and growing funding.” Domestic demand is also being boosted by rising cost of living expenses and home equity values.
Funder believes reverse mortgage securitisations will grow from a niche to “significant” part of the sector over the coming decade as more funding is required to meet growing demand.
He says boosting the income of the ageing asset-rich, cash-poor retirees also stimulates the broader economy by providing cash where it is needed and is likely to cause a larger change in economic activity.
“It really does have a multiplier effect stimulating the economy, with equity coming out of houses and into the real economy.”
The recent MFS Investment Management’s global retirement survey found a major financial concern for more than half of Australians was finding ways to contribute to their super savings. Only one in four were confident of being able to retire when they wanted, it found.
Reverse mortgages allow older people to access wealth in their homes without having to sell or move.
Terms and conditions vary between providers, but most require settlement when the house is sold and within varying periods if the client moves into aged care.
Mortgage brokers, such as Chris Foster-Ramsay of Foster-Ramsay Finance, says there is growing acceptance of reverse mortgage products among the broker and adviser community. “It’s picking up because of the need to meet the financial needs of the over 60s.”
About $80 billion was raised through securitisations last year across 100 transactions. An estimated $60 billion was in residential mortgage-backed securities (RMBS) from the major banks.
The bulk of the remainder was asset-backed securities, such as auto and personal loans, and commercial mortgage-backed securities.
Duncan Hughes
Published in Investor Strategy News