DBRS Morningstar says that the Australian securitisation market could hit AUD$100bn in 2026, in part because “Australian securitisation remains attractive for offshore investors because of the country’s historic stability, uncertainty in other markets, and Australia’s increasingly diversified economy and limited direct exposure to US tariffs.” Greg Winterton caught up with Dr. Joshua Funder, CEO and Managing Director of Household Capital, to discuss the current state of and outlook for the reverse mortgage sector of the Australian securitisation market in this month’s Q&A.
GW: Josh, let’s start at the beginning. The Australian reverse mortgage securitisation market has only really got going again in the past two years. What’s taken it so long?
JF: Reverse mortgage securitisations in Australia were essentially sidelined after the global financial crisis because non-bank lenders at that time failed to establish sustainable financing vehicles. This left the banks, largely Australia’s “Big Four” banks (CBA, Westpac, NAB, and ANZ), which began withdrawing from the reverse mortgage market around 2018, following a review of the sector by ASIC (Australia’s corporate regulator). The review found that banks were failing to adequately document borrowers’ long-term needs (like future aged care costs) and meet their responsible lending requirements.
The re-entry of non-bank lenders to the reverse mortgage market has regenerated the sector. At the same time, the baby boomers have reached retirement age (and Gen X are hot on their heels!). Australia’s ageing population, high levels of home ownership plus growth in housing prices means that baby boomers have around AUD$1.4trn saved in their homes.
What’s taken it so long? The re-emergence of a viable sector, funded largely by non-bank lenders. Consumers required education and information to understand the product and see the difference between the unregulated products that proliferated around the time of the GFC and those available today.
In terms of the Australian reverse mortgage securitisation market, Household Capital is currently the only issuer. We have committed the time to build scale in our portfolio and the robust actuarial data and tech-stacks required to satisfy global rating agencies like Moody’s and S&P. Achieving a AAA rating for 90% of our portfolio has taken innovative analysis of the underlying security and performance including low LVRs, well-regulated mortgage contracts, low customer and reputational risk, strong voluntary discharge, long-term variable rate accrual and house price growth.
The success of Household Capital’s inaugural transaction in 2024 and our dual-rated HHC 2025-1 transaction proves the performance of Australian, regulated, variable rate reverse mortgage portfolios can meet the needs of global securitisation investors.
GW: Does the presence of the Australian government’s Home Equity Access Scheme (HEAS) act as a stabiliser for the private reverse mortgage market, or does it create a unique ‘crowding out’ risk that originators in other markets don’t have to navigate?
JF: The ageing demographic of the Australian market is a huge opportunity and is large enough to sustain high growth into the future. We have over five million baby boomers – and a similar number of Gen X – in need of improved retirement funding and housing, and over AUD$1.4trn of existing home equity saved.
The federal HEAS is a useful product for some borrowers but has limitations around the amount that can be borrowed and access to lump sum payments. However, it increases awareness of the role of home equity in long term retirement funding, which is helpful to the broader sector.
We expect there to be plenty of supply and demand in the private market for many years – decades, even – to meet the needs of an ageing population.
GW: Your HHC 2025-1 RMBS Trust product introduced a subordinate Class X Note to provide sustainable originator funding of mortgages with lower cashflows. What drove this decision and will it be a feature of future issuance?
JF: The Class AL note – which we were able to issue with a AAA rating – provides capital to the securitisation pool to fund future loan drawdowns for our existing customers. This enables us to meet their ongoing needs and maintain the scale of the portfolio. Our decision was driven by the need to create a sustainable, self-funding mechanism within the trust itself. By moving the responsibility for funding future drawdowns into the securitisation, we ensured we can scale the business going forward.
Our X Note was issued at above par because a) the average LVR across our own term portfolios is around 25% and b) the fact that variable-rate reverse mortgages without break fees, which are standard features of the Australian market, demonstrate a reliable voluntary discharge rate of over 10% per annum. This means that the equity cushion and the capital flows back into the deal provide confidence to ratings agencies and institutional investors.
GW: The ultimate protection against crossover risk is house price inflation (HPI). How do you model for house price volatility to ensure that the statutory ‘No Negative Equity Guarantee’ doesn’t eventually erode investor returns?
JF: Variable rate reverse mortgages with low starting LVRs have negligible Negative Equity Risk, in sharp contradistinction to fixed rate reverse mortgages in the UK and high starting LVR reverse mortgages in the US. The minimal extent of negative equity can be seen in the strong ratings we are able to achieve for both of our recent securitisations.
GW: What makes the Australian ‘rated’ equity release RMBS structure a superior or complementary diversifying play to other markets? Are there specific jurisdictional benefits that give Australian pools a lower risk-weighting in a global credit portfolio or better risk-adjusted returns – or both?
JF: The Australian RMBS structure provides diversification benefits when in a portfolio with securitisations from other markets. As a relatively new asset class of existing home equity, it offers investors low risk and a premium return. This is because Australia’s reverse mortgage market has world leading consumer regulations that have had no material breach since they came into force in 2012. As previously mentioned, the low LVR, variable rate model provides substantial benefits to investors.
GW: The Australian housing market continues to face a structural supply-demand imbalance, with KPMG forecasting steady house price growth of over 7% for the year, for example. Given this tailwind and an ageing population, at what point will the Australian equity release securitisation market move from ‘niche specialty’ to a standard, consistent volume segment of the Australian private credit landscape?
JF: The market moves to “standard” when home equity is no longer seen as a last resort but as the third pillar of retirement funding alongside superannuation and the government’s Age Pension. I’ve already mentioned that Australia has approximately AUD$1.4trn locked in retiree homes, so the opportunity and the supply is there.
Ten years ago, around 12% of retirees entered retirement with a mortgage; now over 30% carry a mortgage into retirement. So, mortgages in retirement have become mainstream but a recourse mortgage is inappropriate finance for retirees without an ongoing income. So, meeting this need is a growth segment.
As a sector we are already originating record volumes over AUD$1bn per annum. The “niche” label will likely only drop when primary market activity grows to a point where it can support several billion dollars or so in annual securitisation volumes. We’re not there yet but as I commented earlier, the structuring is there now, and we have a proven securitisation offering.
Dr. Joshua Funder is CEO and Managing Director at Household Capital