Start-up set to target grey mortgage market
LONDON: A start-up is now set to target the burgeoning grey mortgage market.
In banking, winning young customers, becoming their “main financial institution” and selling them products as they go through life are often lauded as the keys to riches.
But a Perth fintech is targeting people at the opposite stage in life: the over-55s who are struggling to repay mortgage debt or want to top up income in retirement.
Cheekily named Boomer Home Loans, the start-up is launching next month offering reverse mortgages and a suite of “pre-reverse” home loans after spotting a gap in the market after the big banks stepped away from the space in recent years.
It’s the brainchild of couple Scott Phillips and Jacqui Schofield, who are in the midst of a series B round seeking $4.3 million after previously raising almost $14 million from high net-worth investors such as HappyCo founder Jindou Lee, former Fortescue Metals Group executive Stephen Pearce, and ex-BNK Bank chief executive Simon Lyons.
It builds on Mr Phillips’ prior broking business, Smooth Retirement, where he discovered large pools of older Australians to whom it could lend rather than just act as a middleman.
He says the business is nearing terms with a “large pension fund” for debt funding for its loan book, and mostly expects to play in the refinancing market, including via brokers, as well as taking on new borrowers.
“You look at what’s happening in the prime mortgage space with a lot of the online lenders and neo banks, and a lot of people doing amazing things for first home buyers and others, your Tic:Tocs, Lendi and Athena et cetera, Ms Schofield said.
“And we looked at it and thought, ‘why is nobody creating a specialist service for over-55s with the same sort of online and quality services?’ So, it was wide open and a real gap in the market.
“There’s something like 2.16 million households led by over-50s in Australia owing $600 billion on their mortgages. That is astonishing.”
Reverse mortgages allow home owners over 60 to stay in their house, use equity as security for a loan, and repay the debt and capitalised interest when the property is sold.
Big banks have ceased offering the products and the entire mortgage market tightened lending standards after the Hayne royal commission in 2018-19, making it harder for some older Australians to get or refinance 30-year mortgages.
Mr Phillips said many Australians carrying a home loan into retirement typically used their superannuation to pay it down, leaving them with less income. Others may not have superannuation or have other debts, and are forced to sell their home, while some may just be asset rich but cash flow poor.
According to a survey by National Australia Bank, 9 per cent of people over 65 have home-loan debt, and 33 per cent between the ages of 50 and 64.
“No one has come up with anything new that suits older customers with debt. They’ve either got to sell their house or try and pay their loans off by using their super,” Mr Phillips said.
Boomer Home Loans would offer four products, including a “switch” home loan for the over-55s which would aim to offer a better rate to the many households it found were still paying north of 4 per cent.
It would work with customers on when they wanted to retire and their financial situation, using technology to screen scrape their financial data to determine a “reverse entry point”.
At this point the loan would switch into its reverse mortgage product and repayments would stop, with the interest capitalised into the loan and repayable upon sale of the property.
The company’s standard reverse mortgage allows retirees to access 15 per cent to 50 per cent of the equity in their home. The older they are, the more they can access.
Boomer Home Loans will go up against the likes of Household Capital and Heartland Finance, but Mr Phillips said there was plenty of room for growth in an ageing country, as was happening in the UK and Canada, and the company was looking to boost its staff from 30 to 45 as part of its national rollout.
The company has signed major sponsorship deals with the Fremantle Dockers AFL team, and Wests Tigers in the NRL for the next two seasons.
“The banks have made their policy decisions about what they do,” Mr Phillips said. “[But] we see that reverse mortgages are an excellent financial product … because it’s a credit when they’re unlikely to get any other form of credit, and an instrument that enables them to have more choices with what is generally their most valuable asset.”
In 2018, a report into reverse mortgage lending by The Australian Securities and Investments Commission found there was an “increasing role” for the products as the population ages and more of people’s wealth was tied up in property, but noted “most consumers still have negative overall perceptions” towards them and people must be aware of the risks.
Tackling the challenges have been getting more attention. In January, the federal Coalition government revamped the Pension Loans Scheme into the Home Equity Access Scheme, which effectively works like a reverse mortgage.
Mr Phillips said the government’s scheme and strict regulation of reverse mortgage providers helped increase confidence in new, tech-driven players.
“Platforms are revolutionising the way compliance is delivered, and it’s really one of the important byproducts of our development, having built all of our tech stack and learning from those before us – the fintechs that modernised the prime mortgage market,” he said.
Mr Phillips said the regulator’s borrowing limits were conservative and he wasn’t concerned about a property price correction after the COVID-19-driven boom.
“Property cycles will be what they’ll be … We see the regulator-imposed loan-to-value ratios as sensible guidelines and puts us in a position to lend responsibly to older people.”
