Lender launches commission-free retirement loan

Household Capital, a specialist retirement lender founded in 2016, has launched a loan product that allows retirees to access additional retirement funds by using a low interest loan to transfer a portion of the value of their homes into their superannuation fund or investment account.

The specialist lender’s announcement states that borrowers have “guaranteed lifelong occupancy of their home”, and in line with regulatory changes in 2012, they “never have to repay more than the value of their home.”

Joshua Funder, Household Capital’s chief executive and managing director, said: “Household Capital’s loan is suitable for people approaching retirement who have a low superannuation balance that needs a boost.  

“It also works for those people in mid-retirement who may have depleted their superannuation and need more income, as well as those retirees who may need funding for the transition to supported care.”

The transfer of home equity between generations can also help fund first-home buyers' deposits.

Household Capital’s $100 million wholesale debt facility was provided by ME Bank, which also made a strategic equity investment in the specialist lender.

Other equity investors include Macquarie Group executive and current JP Morgan vice chair Jim Miller, former federal minister for superannuation Nick Sherry, and senior counsel Allan Myers.

Mr Sherry, who is also the chair of Household Capital, said governments worldwide have been struggling with pressures on both revenues and expenditures as their working age population declines, while the costs of healthcare, aged care, and pensions rise.

According to the specialist lender, the average retiree’s superannuation balance, which is around $200,000, lasts 10 to 15 years.

At the same time, there is more than $900 billion in untapped home equity owned by retirees, with approximately 80 per cent of retirees owning their own home, the lender noted. The median value of home ownership at retirement is about $700,000.  

The launch comes after Commonwealth Bank and its subsidiary Bankwest, Macquarie Bank, and Westpac exited the reverse mortgage market in the last two years, leaving Heartland Seniors Finance as the largest provider with a 20 per cent market share.  

No commissions paid to brokers

While lenders like Heartland Seniors Finance rely on the broker channel, which accounts for 70 per cent of originations, Household Capital operates on a fee-for-service model.

“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,” the lender’s announcement explains.

“Household Capital does not pay commission or trailing commission to brokers and there are no ‘break costs’ or hidden fees. Instead, Household Capital’s financial services are delivered alongside superannuation funds or financial advisers to fit each retiree’s specific needs.”

The lender will charge an interest rate of 5.9 per cent p.a., which it said is “significantly lower than those previously charged by the banks”.

A review of the $2.5 billion reverse mortgage market by the Australian Securities and Investments Commission last year, which drew data from 17,000 reverse mortgages, found that reverse mortgages tend to have interest rates that are around 2 per cent higher than standard home loans. It also noted that, because reverse mortgage customers are not required to make repayments until they sell the property or die, the interest compounds over time, making the outstanding bill on a reverse mortgage larger than sometimes expected.

“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,” former superannuation minister Mr Sherry said.  

“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.”

[Related: P&I switch could worsen senior debt stress]