Household Capital welcomes review of Government’s Pension Loans Scheme, calls for greater protection of seniors

From
Josh Funder

Josh Funder

Household Capital, an independent, specialist retirement funding provider has welcomed the federal government’s review of the rate it charges for the reverse mortgages in its Pension Loan Scheme (PLS), its expanded home equity funding program.

Dr Joshua Funder, Chief Executive at Household Capital, says the review is an endorsement by the government of the importance of home equity as part of the third pillar of retirement funding, even while the big banks have stepped away.  “Australians know that the family home provides retirement lifestyle, wellbeing housing and funding.  The federal government must support the retirement funding sector to deliver better outcomes in retirement,” said Dr Funder.

Government review of its PLS interest rate is urgently needed

“Australians deserve efficient, affordable access to their home equity to fund their retirement. For many retirees, the PLS is a start, albeit with limited flexibility. We welcome the Treasurer’s willingness to examine the current rate of 5.25% p.a and move towards a lower rate such as that offered by private sector providers such as Household Capital’s own rate of 5.15%. It’s a pleasing response to the advocacy of National Seniors.

“We call on the Government to support retirees with this review by passing on improved home equity interest rates, as a lower rate of compound interest can have a significant impact in preserving more home equity throughout the term of their loan” said Dr Funder.

Household Capital’s innovative approach to wholesale funding means it can offer a rate significantly lower than its competitors. With the PLS under review, Household Capital’s rate remains the lowest on the market at 5.15% p.a after passing on the RBA’s October rate cut in full.

Government must do more to protect seniors

Although a reduction in the interest rate payable on the PLS may benefit retirees, Dr Funder cautioned that applicants do not receive the full protection of ASIC responsible lending:

“While PLS customers receive a Centrelink government loan, they are currently exempt from responsible lending criteria set out by ASIC. Additionally, as ASIC noted in its 2018 review of reverse mortgages, all PLS customers should be thoroughly vetted for potential elder abuse. We hope the Treasurer will take this into consideration in the review,” said Dr Funder.

 Retirees deserve innovative retirement funding solutions

Household Capital provides Australian homeowners with such much needed, flexible access to capital. This may include being used for income, improved housing or family expenses, contingency funding for unexpected expenses or funding the transition to aged care.

“Improved retirement income is crucial, but it’s not the only funding that retirees need for 20 years or more of retirement. Nor does it cover all retirees’ capital needs, which is where private providers come in. Household Capital provides Australian homeowners flexible access to retirement funding in income and capital; this may include a regular income stream, improved housing, contingency funding for unexpected expenses or funding the transition to aged care.”

Retirees are doing it tough – and banks have stepped away

Dr Funder says that many retirees are still paying off a mortgage at higher rates than new loan  applicants.

“The banks are not looking after their retiree customers by failing to pass on rate cuts to existing loans. it means loyal retirees still paying off their forward mortgage don’t get the low rates that are offered by banks to bring new customers in the door.

“Home equity can be used by retirees to refinance their mortgage and free up retirement funding. Because there are consumer protection laws governing reverse mortgages, there is no risk of default or having the bank take the family home,” he explained.

“We provide retirees with personalised service, flexibility and choice to cover the fact that there is no ‘average retiree’. Like the Centrelink PLS, Household Capital wants to meet the retirement funding needs of senior Australians,” concluded Dr Funder.

3 comments

  • Jeff Oughton says:

    All these providers – the Federal govt, banks and now Household Capital and other non-banks – are effectively charging older low-income Australians excessive rents. It’s inefficient – some pensioners would say a rip off – and I would comment bad for “jobs and growth” in Australia and currently, a missed opportunity for super fund members!

    These equity release products allow low pensioners – living on the govt funded aged pension and/or a small private pension – to unlock a relative small amount of their equity or personal savings in their home, increase their retirement incomes and spending and stay in their homes. But the retirement income package is at an excessive price – in short, an excessively priced home loan product and ill-advised by vested interests.

    Govt funded pension loans advised by Centrelink are now available, but need to be re-priced accordingly. Currently, some govt, corporate or industy employee superfunds also have the capabilities and members that would benefit from an internalised member arrangement at about 3% – well below 5% sold by the govt, banks and non-banks.

    From a macro perspective, many older Australians are over-saving in their homes and under spending in retirement – so the unemployment rate amongst younger Australians is up to 0.5% too high currently.

    When will the trustees of super funds fulfill the interests of members and provide super fund members (or former super fund members) on aged pensions this super lifestyle package with disinterested advice and invest in a AAA rated loan/security for members in accumulation? When will the government act in the national interest? Australians – young and old – do not need another inquiry – just leaders acting in the interest of members and Australia as a whole!

  • josh.funder says:

    Household Capital agrees Australian retirees should have more efficient access to home equity retirement funding. At the same time as we have innovated to provide the lowest available interest rates for retirees, the major banks have withdrawn from providing any form of reverse mortgage. We also welcome the expanded access to the Pension Loans Scheme. We should never forget that the costs, risks and consumer protections of any form of home equity access are higher than regular mortgages and public and private providers have to factor these in to long-term home equity retirement funding.

  • J Oughton says:

    o repeat, the Government poorly repositioned its offering in May and now is rightly reviewing its loan rate. Today, this remains an extremely inefficient reverse mortgage market with excessive loan rates on highly collateralized home loans for cash constrained older Australians – that do not reflect risks and operating costs of providers.

    Actual credit risk is virtually nil due to very small size of loans v collateral, equity risk is also very small, there is excess global demand and readily available funding for such highly rated securitised assets etc.

    Loans secured on listed equity assets for equity investments are available for less than 5%!
    Loans secured on homes for equity investment are available at less than 4%!
    Covered bonds with recourse to residential bank mortgages are sold to super funds and other investors at less than 2%!

    The Govt. can cash/term fund its loan offering at less than 1% plus some operational costs of 1.5% and should re-price the PLS to well less than 4% – and still make a commercial return!

    Otherwise, Australia will be stuck with reverse mortgage providers extracting excessive rents and maintaining excessive prices to a small number of aged pensioners cash constrained in an inefficient reverse mortgage market.

    The majority of older Australians will simply not buy the over-priced relatively small home loan; and continue to lock excess savings in their home equity, under-spend during retirement and bequest all their home to others – and that’s not good for “jobs and growth” for Australia as a whole – and especially younger and older lower income Australians!

    As the Treasurer has recently suggested – business, banks and all providers should review their return on shareholder funds/equity in this ultra-low interest rate world …..and I would add specifically super funds internalise reasonable returns for existing, former aged and potentially new members of super funds.

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