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Household Loan
Pension Boost Service
Home Equity Access Scheme
Refinance for 60+
Reverse mortgages in favour with investors
Reverse mortgage lender Household Capital has priced its first residential mortgage-backed securitisation (RMBS) issuance, raising $263m from local and global investors as the home equity release market heats up.
Speaking exclusively to The Australian after the deal completed, Household Capital chief executive Joshua Funder said it was a breakthrough for mortgage securitisation in Australian retirement housing and funding, with widespread interest from investors including global pension funds and super funds, as well as insurance, banking and institutional credit fund investors
The final transaction was upsized from the original $249m due to strong demand.
“Our inaugural mortgage portfolio securitisation is a great outcome for Australian retirees and a big step forward in the evolution of Household Capital,” Mr Funder said.
“The quality of our customers and the low risk nature of the mortgages we originate were critical in attracting local and global investors to sustainably scale retirement housing and funding and help Australians meet the challenge of an ageing population.”
The facility will refinance part of Household Capital’s existing mortgage portfolio and is based on mortgage holdings with an average loan-to-value ratio of less than 25 per cent.
Demand from institutional investors means such issuances are “repeatable, scalable and sustainable”, Mr Funder said.
“There are very few asset classes in Australia that aren’t heavily competed by global investors and local investors,” he said.
“As a new asset class, we think there’s a really strategic opportunity to expand, but also to continue to meet the needs of customers and the needs of investors without being artificially mispriced or changing the risk profile of the underlying asset.”
The issuance comes amid a surge in home equity release take-up as more Australians move into retirement, many without adequate retirement savings.
The past year has seen more Australians than ever access equity in their homes, according to Mr Funder.
An estimated $1.3 trillion of available equity is held by retirees in housing, according to Deloitte, with the Actuaries Institute putting the potential market, adjusting for loan to value ratios, at about $300bn.
Currently, just 1-2 per cent of this $300bn is being accessed by retirees releasing equity from their homes.
The institute this week called for the family home to take its place as a fourth pillar of Australia’s retirement income system, alongside the Age Pension, superannuation and voluntary private savings.
The institute suggested policy reforms for unlocking wealth in the home, including, controversially, adding a portion of the value of the family home in the Age Pension means test.
As baby boomers join the retiree ranks, the reverse mortgage, or home equity release, option is expected to become more popular.
“Australia has a real opportunity, with its world-leading regulation and world-leading property assets, to be the first country to really use home equity as a core part of national wealth, not just a small credit market,” Mr Funder said.
“This is the first global securitisation that opens the way for Australia to crack the challenge of ageing population using wealth.”
Household Capital is an Australian non-bank lender specialising in reverse mortgages. The lender started writing loans in 2019 and has a loan book of about $450m.
It is 30 per cent owned by insurance giant Legal & General and 20 per cent by Helia (formerly Genworth) and has $600m in wholesale funding from IFM, Citi and private equity house PEP.
The RMBS, completed this month, was arranged by Citi, which also acted as the lead manager. Settlement is expected on July 25.
This article was published in The Australian on 25 July 2024