Unlocking Housing Wealth in Retirement

Welcome to Richard Collier, CFO at Heartland Bank.

In addition to Heartland, Richard has held senior roles at Westpac in St. George.

Today, he's going to cover a topic generally quite neglected, I think, but quite pertinent given the amount of wealth older Australians have locked up in their primary place of residence.

For those that need it, how do you unlock housing wealth in retirement?

Richard.

Thank you, Darren, for having me today.

This is a great topic I'm very passionate about and keen to talk about.

So Darren, I'm not here today to talk about markets or rates, something more structural.

The growing gap between how asset rich Australians look on paper and how constrained many retirees feel.

Housing wealth has been traditionally accessed very late in life.

What we focus on is unlocking a small amount of that wealth to improve retirees' lives.

As Darren said, I'm Richard Collier, CFO of Heartland Bank Australia.

I've spent close to 30 years in banking and financial services.

I joined Heartland in 2004 following the acquisition of the ADI Challenger Bank.

We're not a household name by design.

We're a specialist bank focused on niches where we have deep expertise.

Turning to our products, this slide shows our major product lines.

We don't try to be everything to everyone.

Our model is to be the best in the market with what we do on the lending side, fueled by predominantly bank funding like term deposits.

A reverse mortgage, it's just like a conventional mortgage.

However, there are a few key differences.

Firstly, the term is linked to the youngest borrower.

So you have to be over 60 years to qualify for a reverse mortgage.

It doesn't have a servicing element.

So customers are not required to pass an income test like they are on a conventional loan, nor do they need to make repayments.

Repayments are completely optional.

At the end of the loan, that typically is triggered by three key things.

Firstly, if the property is sold, the youngest borrower moves to aged care, or the estate tidies it up.

To understand the sleeping giant of home equity, we have to look past the macro statistics and look at the lives it changes.

I want to share a story about a customer from Victoria named Rita.

whose journey was featured in the Sydney Morning Herald late last year.

Rita is a single mother and the primary breadwinner for her two sons.

She had a steady job and works incredibly hard, yet found herself trapped by the rising tide of day-to-day expenses.

For years, she had been forced to put her life on hold.

She couldn't afford the essential renovations her home needed, nor a reliable car her family required.

She was asset rich, but effectively living in a state of constant financial anxiety.

When we facilitated the release of our home equity, the transformation wasn't just financial, it was deeply emotional.

When the funds hit her account, Rita broke down in tears.

She told us she simply couldn't believe that the home she had worked so hard for was finally working back for her.

This is core of our mission.

A reverse mortgage isn't just a financial product.

It turned Rita's home into a driver for her security, giving a hardworking mother her life back.

The second story I want to share is that of Terry and his wife Christine, who you'll see pictured here.

Terry is an engineer, a man who has spent his life building things and valuing the rewards of hard work.

He and Christine started their family in their early 20s with high hopes for a quiet, comfortable retirement.

However, as many of our customers discover, life rarely follows a linear path.

Christine was diagnosed with cancer.

Suddenly, the golden years were replaced by clinical reality of immediate expensive and non-negotiable health costs.

Terry's story represents a silent reality for many Australian seniors, the complications of age.

By utilising a reverse mortgage, Terry didn't have to choose between his wife's care and the roof over their heads.

He was able to fund her treatment

and complete their home modifications, ensuring Christine could navigate her illness in a space that was safe.

Next, being a leading specialist bank, our focus is digital distribution, strong capital and liquidity management, and a disciplined credit culture.

We are the biggest in the market for reverse mortgages and livestock financing, and we hold around 40% of the market share in reverse mortgages.

We have been in this product set since 2004.

It is long dated lending, so it really helps having a leader in the sector, given the resilience and risk discipline that the product requires.

Options for Aussie retirees.

Practically there's four different strategies people can do in the retirement phase, accessing equity in their housing.

One is downsizing.

Whilst that is a viable option, it is quite emotional and often there's quite a lot of friction when you think of stamp duty and other transaction costs in doing such.

Next, government schemes.

They're quite helpful in the scheme and quite appealing, especially when you think of the interest rate.

That said, they're quite limited and capped and they're more designed for a pension top-up.

Next to reverse mortgage.

These are really ideal and something we really back.

This is where there's no forced sale of the property, no mandatory repayments and strong consumer protections such as the no negative guarantee equity.

So you can live in house with comfort that you'll never owe more than you borrowed in the interest.

Next is debt-free equity release.

These are a different category of unlocking that equity, something not used commonly, but it is an option.

Turning to the household wealth metrics, this is where it gets to the heart of the issue.

So Australian household balance sheets have around $18 trillion, which is a record high and it continues to grow.

This averaging out per household 1.6 million is quite astounding when you think of the proportion.

Of that household balance sheet, you'll see on the left there, the household is at $12 trillion, a significant component of wealth.

Obviously, when we think of it in tandem with the super system, which has really served us well at a bit over $4 trillion, we know that that is not sufficient for the lifestyle to fund when we think of healthcare, cost of living pressures, and where the economy is at.

Now to some interesting survey results that we partnered with Deloitte's on.

Australians over 60 hold over 3 trillion in their property, yet less than 1% of that available equity has been unlocked and accessed.

The total reverse mortgage market is only around 5.5 billion against an addressable market of around 600 billion.

So you can see how infant the market is.

It's something that we know can be unlocked further.

Borrower behaviour, often this is one that's misconceived that borrowers tend to borrow what they can and then misuse it and clearly the inheritance then is eaten away.

That's actually a myth.

What we do find with borrowers across the market is that they're actually quite responsible and typically borrowing around half as much of that equity unlock that is available to them.

And also we have a large cohort of customers that come back for continued draws for, you know, typically improving the household or acting as, you know, the bank of mum and dad or helping the grandchildren on education and other needs.

So quite responsible in respect of our behavior of this product.

Turning to our portfolio performance at Heartland.

Our growth has been consistent since 2004, and I'm really proud to say we've supported over 30,000 customers.

You will see that from a risk point of view, it's a very low proportion of the loan to value ratio.

And as I touched on, the average loan amount is a bit over $150,000.

Stepping back, this matters now because Australia is ageing.

Government balance sheets, as we know, especially when we think of the economy we live in now, is really under pressure to support this segment of society.

And we know alongside super, it's not a substitute done properly.

Retiree outcomes and objectives can be done much, much more comfortably with a strategy that includes the household.

With that, I'll wrap up this presentation and look forward to questions, Darren.

Thanks, Richard.

Some of those statistics are certainly quite stark in terms of the level of household wealth that is sitting on Australian household balance sheets, I should say.

And if it is housing is Australia's largest amount of retirement wealth, I think you had a figure of nearly 12 trillion.

Why is it still largely excluded from formal retirement planning?

What other just stigmas out there are around that?

Yeah, that's an interesting question, Darren.

And it really comes down to the household and typically the one that people have grown up in and had their families.

It's an emotional asset.

Consumer attitudes have really driven it that way and even policy design.

So that's probably the crux of this, Darren.

And if we think of longevity increasing, the growing gap between super balances and really the retirement needs or cost of retirement leads,

It's the largest store of value that is unlocked and that's something that we've really got to address as a society.

And Richard, maybe just as a follow on, but as people get older that, you know, maybe they're drawing down on their pensions and they need to tap into that wealth.

When you look at the sector over sort of the course of the next five to 10 years, let's say, what does success look like from a heartland bank perspective?

Yeah, great question again, Darren.

Look, in the retirement and if I think of 10 years time success, Australians would really have genuine liquidity choices without being forced to sell their home.

Often, the home is almost seen as that last resort asset when really what we're seeing and we can see with the value of the household balance sheet that can be really be leveraged as an option set in that financial planning.

So seeing it become

mainstream would be really exciting for us at Heartland to see.

And clearly, we'd love to be the leader providing that service.

I guess, Richard, ultimately, it comes down to providing better retirement outcomes with less stress on the overall system for older Australians.

Absolutely.

I couldn't have said it better, Darren.

Well done.

Lovely Richard, thank you very much for your time today.

That was a very interesting insight into opportunities that older Australians can use to unlock wealth in their household.

Really appreciate the time Darren, thank you.