ME Bank has thrown its weight behind a new reverse mortgage lender, providing $100 million of funding and taking an equity position in Household Capital.
The company is chaired by former Minister for Superannuation and Corporate Law Nick Sherry. The chief executive is Josh Funder, who appears to have no financial services background, but has worked with the Clinton Foundation.
Household Capital is the second lender this year to announce plans to fill the gap in the reverse mortgage market left by the exit of the big banks.
It is offering a reverse mortgage, with loan size ranging from $50,000 and $550,000. The initial variable interest rate is 5.9 per cent.
The usual no-negative-equity guarantee applies and Household Capital also offers a protected equity facility, allowing borrowers to exclude up to 20 per cent of the home value from the financing arrangement.
Household Capital will not pay commissions to intermediaries. It plans to distribute through advisers who will charge a fee for service. There is an establishment fee of 1.5 per cent but no ongoing fees.
One thing that makes the product different from other reverse mortgages is that the borrower must have a purpose for applying for the loan, such as topping up their super or other investments to generate retirement income, making an intergenerational transfer, renovating the home or paying for aged care.
Another lender that sees opportunity in the reverse mortgage market is New Zealand’s Heartland Group. According to the company’s interim financial report, its Australian reverse mortgage business had annualised growth of 24.9 per cent in gross receivables in the December half.
Heartland said it planned to “accelerate growth through raising product awareness under dedicated marketing initiatives, including a television campaign.”
Last October Commonwealth Bank announced that it would stop selling reverse mortgages – the last of the big banks to drop out of the market.
Comparison site Canstar lists only Heartland, IMB Bank and P&N Bank as providers of reverse mortgages, while finder.com.au also lists Heritage Bank.
Heartland got into the reverse mortgage business in 2014, when it acquired Sentinel New Zealand and Australian Seniors Finance from Seniors Money International. It claims to be the biggest reverse mortgage provider in New Zealand with an estimated 80 per cent market share. In Australia, it claims market leadership with a 20 per cent share.
The company’s interim financial report says: “The combination of favourable demographics, limited active originators and raising product awareness through increased marketing activity presents the opportunity for significant growth and to cement Heartland’s position as the market leader in reverse mortgage origination in Australia.”
Maybe, but consumer demand looks weak. According to Australian Prudential Regulation Authority figures, at June 30 last year there were 23,000 reverse mortgage loans outstanding – down from 28,000 a year earlier. Those loans were worth $2.5 billion – down from $2.8 billion a year earlier.