Firm helps tap home equity to fund retirement

The industry superannuation funds-backed ME Bank, rich-lister barrister Allan Myers and former federal super minister Nick Sherry are backing a new specialist retirement funding provider allowing retirees to use equity in the family home to fund their retirement expenses.

The firm known as Household Capital, which is also backed by former Macquarie Group executive Jim Miller, former Skilled Group chief executive Greg Hargrave and other private investors, has established a $100 million wholesale debt facility to provide funding for home equity at the same time as the big banks are rationing credit for mortgages.

“This is the first new major funding for home equity in Australia for more than a decade. It is an important step in making sure that over time we are able to supply the needs of retired Australians with a new asset   class which is Australian residential property securities,’’ said Household Capital chief executive Joshua Funder.

Mr Funder spent over a decade as a partner at GBS, Australia’s largest venture funds management firm, before establishing Household Capital two years ago.

Household Capital helps Australian home owners gain access to additional retirement funds by using a low interest rate loan to transfer a portion of the value of their homes into their superannuation fund or an investment account.

Household Capital receives an establishment fee to cover the costs of putting the loan in place and interest is charged on the capital drawn from a person’s home. The final amount is paid when the person leaves the home and the house is sold.

Mr Funder said Household Capital would charge customers an interest rate of 5.9 per cent.

“It is a pilot facility to test a new asset class which is fit for purpose, which we believe can scale into the billions of dollars to meet a market need, as we have seen overseas. You don’t meet the need if you don’t scale so the ambition of the company is put in place the foundations to enable it to scale,’’ he said.

The Household Loan is designed to meet the needs of Australian retirees by allowing them to balance their savings, continue to grow their assets during retirement, and harvest a sustainable income from their investments.

Mr Funder said that in contrast to reverse mortgages, which allow home owners to borrow against the equity they have built up in their property — typically for short-term reasons, which has led to them being heavily scrutinised by regulators — Household Capital uses sophisticated algorithms to combine a retiree’s home equity, superannuation and aged pension to provide a full, long-term picture of a borrower’s financial profile through retirement.

In addition to providing the wholesale debt facility, ME Bank has made a strategic equity investment in Household Capital, which has raised $6m in two private fund raisings over the past two years.

Nick Sherry, Household Capital chairman and former minister for superannuation under the Rudd government said while there was currently around $900 billion in untapped home equity owned by retirees, the average retiree’s super balance often lasted only 10-15 years into retirement.

“For many Australians, ageing in the home you’ve been living in helps maintain family and community networks and use of local services,” Mr Sherry said. “Selling the family home can result in loss of entitlement to the aged pension and the cost of buying and moving to a new home can mean significant loss of capital”.

“The substantial savings held by Australians in their family homes is a largely untapped resource that can be better utilised to help retirees live well at home”.

Original article on The Australian