12th of August 2014
Bendigo's Homesafe looking good
Bendigo and Adelaide Bank has a track record of making strategic moves at the top of the market and getting it wrong, but its pioneering role in releasing the equity in homes looks like being a long-term winner.
The bank's partnership with Melbourne actuary Peter Szabo is delivering strong profit contributions. In fact, about half of the bank's profit growth achieved in the year to June was from the Homesafe joint venture.
The cash profit of $382 million was up about 10 per cent on 2013. It showed positive trends for the banking sector including improved net interest margins from lower deposit rates. The Homesafe product allows a retiree to cash in some proportion of the value of their home without going into debt. Bendigo, through the Homesafe Trust, is buying a share of the future sale proceeds of the home. Szabo was not available on Monday, but he said in a submission to the Henry Tax Review that about $500 billion is tied up in the value of homes owned by Australian retirees that could be used to augment their retirement incomes.
Bendigo is in the vanguard of what could be a game-changer for retirement incomes in Australia. Given that the average superannuation fund balance in Australia is about $24,000, it is clear that the baby boomers will not have sufficient income in retirement even if the 2½-year bull market in Australia keeps on rampaging.
Retirees are asset-rich and income-poor, which is why Szabo's idea of unlocking the value in homes makes so much sense. He estimates that about 89 per cent of couples and 77 per cent of singles over age 65 own a home. However, until the launch of the Homesafe product, the main avenue for unlocking home equity, a reverse mortgage, left too much risk in the hands of the retiree.
TONY BOYD – Australian Financial Review