ME Bank and Household Capital establish $100 million innovative wholesale home equity funding facility

11 April 2019:

Household Capital, an independent, specialist retirement funding provider, and ME Bank, an industry super fund-owned Australian bank, have announced a partnership establishing a $100 million wholesale debt facility.

The terms of the facility are innovative and designed to meet the major unmet financial needs of Australian retirees who plan to continue living at home.

ME Bank holds a minority equity stake in Household Capital.

Needs-based finance innovation

Australians are living longer but many do not have enough super savings to provide sufficient income throughout retirement.

“Retirees want to stay at home, but many are struggling to make ends meet as they age,” said Josh Funder, Managing Director of Household Capital. “Our goal is to deliver a values-based service to help Australian retirees Live Well At Home.

“We fill the gap left by the banks and offer flexible solutions for retirees to meet their retirement funding needs from a combination of superannuation, the savings in their home and their Age Pension.”

This 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.

Home equity supports a wide range of needs

Household Capital provides Australian home owners 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.

Home equity can also be used to fund in-home care and support the transition to aged care. This approach also enables the transfer of home equity between generations to fund first-home buyers’ deposits and educational expenses.

“Household Capital has expanded access to home equity, improved the customer experience and established new sources of finance,” said Jamie McPhee, Chief Executive Officer of ME Bank. “We are pleased to work with such an innovative group to transform the lives of Australian retirees.”

Lowest available rate

Household Capital and ME Bank’s innovative approach to wholesale funding and building strategic partnerships means Household Capital can offer Australia’s lowest available rate to retirees needing to access their home equity.

“Our approach is more efficient and specific to the needs of retired Australians,” said Mr Funder. “This enables Household Capital to mitigate risk when it’s occurred and offer retirees a significantly lower rate.

“Traditional bank reverse mortgages charged around 6.4%. Since the banks withdrew from providing access to home equity for Australian retirees, many remaining providers have increased their rates even higher.

“Working with ME Bank to deliver more efficient and responsible access to home equity, we are able to provide a rate of 5.9%.”

Withdrawal of the banks

Traditional bank reverse mortgages were not always aligned with the long-term housing and income needs of Australian retirees and did not provide genuine retirement funding adequacy and certainty.

Overall the reverse mortgage market in Australia remained static at around 35,000 outstanding loans and up to a $3.5 billion portfolio for the past decade before entering a decline associated with the withdrawal of bank providers. The end of 2018 saw the last of the bank reverse mortgage providers close their books, with both Commonwealth Bank and BankWest ceasing to write new business.

“The banks have pulled out, however nearly one trillion dollars of home equity savings owned by retirees remain potentially available, yet largely inaccessible, to support improved retirement incomes,” commented Nick Sherry, Chairman of Household Capital.

“We provide responsible and flexible access to lifetime savings, allowing retirees to make sound, longer-term economic and lifestyle choices.”