Household Capital CEO Dr Joshua Funder discusses the firm’s new $300m finance package from Citi and IFM

Household Capital CEO Dr Joshua Funder discusses the firm’s new $300m finance package from Citi and IFM

Household Capital recently announced a $300 million scalable financing facility, funded by Citi and IFM. What does that mean for your business and your customers?

“For our customers this delivers Improved access to home equity retirement funding throughout their life and it meets the needs of the nation to draw on the $1 trillion that is already saved as home equity. For the business, it’s a gratifying global endorsement of our innovative approach to retirement funding. It’s a scalable funding facility which will allow us to meet the huge customer demand and to grow our services. To quote one of our strategic partners, IFM Investors, this investment “will help generate risk adjusted returns for our investors, while delivering a social dividend for retired Australians” and it enables Household Capital to “directly support the quality and availability of retirement housing and funding”.”

How long do you anticipate this debt facility lasting?

“We anticipate this facility lasting around 12 months and the facility is scalable to meet the strong growth in customer demand for home equity retirement funding. All the mortgages originated by this facility are backed by full statutory protections including guaranteed home occupancy for life.”

What is the financial product?

“We provide a Household Loan, a form of reverse mortgage, which provides full customer guarantees of: responsible lending; no required regular repayments; non-recourse protections; ASIC-regulated loan-to-value ratios; guaranteed occupancy; future needs scenario disclosures; and no-negative equity guarantee. Household Loans are secured with a residential first mortgage currently at an interest rate of 4.95 percent.”

Who is the Household Capital customer?

“Our customers are Australian retired homeowners over the age of 60, with an average age of 72. Couples are around half our customer group with single retired women forming a significantly higher percentage than single men.”

What do your customers use their home equity for?

“We are a purpose-led lender offering responsible, long-term retirement funding and housing to meet the personal needs of each household.  On average, our customers use only 63 percent of their available loan-to-value ratio (a small fraction of their total home equity) for between two and three distinct retirement purposes. These can include a  top-up, income, refinance home loan, home renovation, Bank of Mum and Dad and aged care.”

What are the key features of the wholesale debt facility?

“The average loan-to-value ratio of the mortgage portfolio is less than 20 percent – making the portfolio low risk and resilient to volatility in property prices.  Household Capital has invested one percent ($3m) of the facility as first loss equity, reflecting the low risk of the underlying loans. Citi invested in the senior tranche of the wholesale debt facility.  IFM invested in the mezzanine tranche of the wholesale debt facility. The facility was a first of its kind in Australia, with tranching of the facility specific to the risk and cash flows of low loan-to-valuation (LVR) Australian residential mortgages. The portfolio already generates adequate cash flow to pay interest on the wholesale facility. There is no liquidity/current interest facility attached to the warehouse. The notes are not publicly rated.”

Who holds the risk on defaults?

“The average LVR of the portfolio is less than 20 percent, and the risk of default is correspondingly low. Any default on the portfolio is borne in reverse order of seniority in the facility.”

What’s next for Household Capital?

“In 2022 we see rapid expansion across the industry worldwide and particularly as consumer knowledge and understanding of the third pillar of retirement funding improves. The Government has recently announced plans to heavily market the Centrelink Home Equity Access Scheme (formerly known as the Pension Loan Scheme) and while the products are quite different this should help to drive general market awareness of the third pillar of retirement funding.”