Simplicity would be able to divert a maximum of about $45 million of KiwiSaver and investment funds to a planned new home loan program based on its recently-released asset allocation model.
According to the Simplicity website, the manager will establish a new vehicle to house the loans – the First Home Mortgage Fund (FHMF) – that siphons off money from the fixed interest exposures of the scheme’s conservative, balanced and growth portfolios to the tune of 8, 5 and 3 per cent, respectively.
As per the September 30 data, Simplicity could have a total of just under $32 million from the KiwiSaver scheme and about $13 million from other investment funds if it maxed-out the FHMF allocations.
While the FHMF has yet to be formally established, Sam Stubbs, Simplicity founder, said the manager has already held the first ballot to access the under-construction mortgage pool.
“I’d be surprised if we didn’t have hundreds of applications,” Stubbs said.
He said the FHMF documentation should be in place before the end of this year ahead of any actual mortgage commitments.
“Even after we approve the loans, the borrowers have up to six months to find a home to buy,” Stubbs said.
The manager has scheduled a monthly mortgage ballot among eligible Simplicity KiwiSaver members who must meet the first-home buyer definition as well as stringent lending criteria that likely limit the offer to higher-income borrowers with larger deposits.
Balloted borrowers who meet the lending hurdles can access a floating rate mortgage that Simplicity says should be about 20 per cent lower than the average ‘big bank’ one-year home loan rate.
“There will also be a fixed establishment fee which will cover the cost of valuing the property you want to buy,” the manager says.
Stubbs said Simplicity would absorb the extra costs of running the mortgage service in its existing fees (set at 0.31 per cent of funds under management plus an annual $30 member impost).
The FHMF does, however, alter the Simplicity asset allocation model, drawing from both the current NZ and offshore fixed income portfolios in equal proportion. Simplicity runs the local fixed interest fund in-house while outsourcing the global component to Vanguard.
However, the asset class reshuffle “will have no impact on the Risk Indicator for each fund”, Simplicity says.
“The Risk Indicator is determined by the historical performance of the funds,” the manager says. “We believe that over time, the new investment will reduce the risk of the fund as measured by the regulations, because its value will change less sharply than the longer term bonds it is replacing.”
Stubbs said the mortgage capacity would naturally increase over time as Simplicity’s assets under management increase loan repayments flow in.
The business, structured as a charity, has about $1.3 billion under management with the Simplicity KiwiSaver scheme currently over $930 million, he said.
But the Simplicity lending model – even assuming generous growth rates – is hardly going to threaten the bank mortgage oligopoly: according to the latest Reserve Bank of NZ figures, New Zealanders hold almost $270 billion in housing loans.