Paul Stratton

Household Capital, a leading Australian provider of home equity retirement funding, is experiencing a surge in demand from older Australians struggling to meet mortgage repayments given the increases in both rates and the cost of living. Approximately 30 percent of Australians retire with a mortgage, a figure that’s expected to grow over the coming years.

A large number of mortgage brokers are referring older clients, many of whom are servicing an increasing debt from a fixed retirement income. This is especially challenging when you factor in the spiralling cost of food, energy, medical expenses and a myriad of other necessities.

Data drawn from Household Capital’s customer base indicates the average borrowing to refinance a mortgage is $250,000. Some retired bank customers are paying 5% interest on their mortgage, which equates to $12,500 per annum or $240 a week the retiree has to find. Many other retired bank customers are on back book pricing of 8%, which comes in around $20,000 per annum or over $375 per week.

For brokers with clients aged 60 plus struggling to pay a mortgage (or other debt), using their home equity to discharge their debt has a number of benefits:

• regular repayments aren’t required, which frees up the client’s income – particularly important for retirees on a fixed income
• guaranteed occupancy – there’s no default risk as long as contractual obligations (such as paying rates and insurance) are met
• client retains 100% ownership, so benefits from future capital growth in the home’s value
• home equity can also be used to refinance other debts, or modify or renovate their home to remain safely and comfortably in their family home as long as they wish to
• household Capital’s Household Loan can be repaid anytime, in part or full, without penalty.

Paul Stratton, Chief Distribution Officer at Household Capital commented, “Around 40 percent of our customers use a Household Loan to refinance their home loan and meet other major needs with the wealth in their home.”

“Growing demand has resulted in annual growth of 114 percent in the volume of loans to refinance mortgages at the end of February 2023, largely as a result of broker referrals.”

The pain of the ‘fixed rate mortgage cliff’ is expected to be felt most acutely from April 20231. As such, Household Capital expects the demand for refinancing mortgages to continue to grow throughout 2023 and beyond.

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Paul Stratton

While many retirees have substantial investments, drawing down on them in volatile markets isn’t optimal. Home equity is a viable alternative to drawing further on super or other savings, or meeting retirement needs when savings are exhausted.

For homeowners, home equity can be used to provide funding for:

• refinancing an existing mortgage or other debts in retirement
• increased retirement income to deal with cost of living pressures
• aassisting children to access the property market or to pay the grandchildren’s school fees
• home renovations or modifications so they can safely and comfortably remain in their family home
• a new car
• in-home care or the transition to residential aged care.

The Pension Boost acquisition

Late last year, Household Capital announced the acquisition of Pension Boost, an innovative home equity business that helps its customers access HEAS. This acquisition enables Household Capital to distribute both its Household Loan and the government’s HEAS, selecting the product most appropriate for financial advisers’ clients to draw on their home equity to improve their retirement funding.

For those clients with modest needs, such a small amount of extra income or a lump sum payment to cover minor expenses, the government’s HEAS is a great, lower cost option that’s available to both pensioners and self-funded retirees.

For those clients who require a higher level of income or capital for more substantial projects or expenses, a Household Loan offers the flexibility to borrow more. The maximum loan amount was recently expanded to $2 million.

“The acquisition of Pension Boost means we can offer advisers’ clients even more flexibility and choice,” said Paul Stratton, Household Capital’s Chief Distribution Officer.

“Home equity, together with superannuation and the Age Pension, provides the full package for retirees and helps mitigate longevity risk; the fear of running out of money in retirement is very real for many retirees.”

Credit team appointments

Household Capital has also bolstered its Credit team with two senior appointments late last year.

The first appointment was Anthony Nolan as Head of Credit. Anthony is a very experienced and commercial credit manager from NAB, where he held a number of senior credit roles over a 27-year period. We also welcomed John Ardiles, a senior credit specialist with more than 18 years credit and sales experience.

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