Retirees flock to home equity access schemes as inflation bites

Rising inflation and high home valuations will drive the reverse mortgage market in Australia to record levels this year, according to Joshua Funder, the chief executive of Household Capital.

Household Capital chief executive Joshua Funder pictured with Genworth CEO Pauline Blight-Johnston. Picture: Jane Dempster

Rising inflation and high home valuations will drive the reverse mortgage market in Australia to record levels this year, according to Joshua Funder, the chief executive of Household Capital.

Mr Funder said between $760m and $1bn in loans were expected to be written this financial year, exceeding the $600m to $700m done in 2007, before the Global Financial Crisis.

In an interview with The Australian, Mr Funder said rising costs were prompting an increasing number of retirees who owned their own homes to consider some form of home equity financing to pay for major bills, home renovations, holidays, cars or to help family members with deposits for their own homes.

“This year will see the biggest year of home equity access for retirees in Australian history,” he said. “It is growing at about 40 per cent a year. It is probably about the only area of the mortgage market which is growing strongly at the moment.”

While some housing prices have fallen recently, Mr Funder said many retirees had equity in their homes that was many times the amount of money they had in super. He said recent rises in the cost of living were making it harder for retirees to meet big bills.

Mr Funder was speaking as Household Capital expanded its footprint in the reverse mortgage market with the takeover of government home equity specialist, Pension Boost. The deal will consolidate its position as the largest player in the market, which is staging a revival after the introduction of strict loan to valuation restrictions by the Australian Securities & Investments Commission in the wake of some questionable practices in the past.

Pension Boost, founded by former Challenger executive Paul Rogan in 2019, helps people access the federal government’s Home Equity Access Scheme (HEAS).

The company originates about 30 per cent of applicants for the federal government scheme, which was revamped by the Morrison government last year to help retirees fund their retirement by unlocking some of the value of their home.

Mr Funder said the deal would allow Household Capital to become the leader in the home equity retirement funding market and provide customers with a “one-stop shop” for their products. HEAS provides retirees with limited funding against the security of their home under strict conditions.

Mr Funder said Household Capital’s products allowed for much larger amounts, but HEAS suited some borrowers.

The reverse mortgage market, which allows people to borrow against their house, was growing before the GFC but took a blow amid reports of retirees borrowing more than the value of their home.

Most of the major Australian banks withdrew from the market.

But ASIC now limits the amount a person can borrow, starting with 25 per cent for a person aged 65 and gradually increasing with age, and imposed other restrictions on the sector.

Mr Funder said the controls on the market made it one of the best regulated in the world.

Household Capital has an average loan-to-valuation ratio of 19 per cent, which means its customers still had home equity of 81 per cent. Household Capital has already lent out more than $300m this year as a result of funding from Citibank and IFM Investors.