In the midst of a challenging financial landscape, mid-life Australians are increasingly finding themselves caught between the rock of growing mid-life expenses and the hard place of rigid banking requirements.

As property values continue to rise at a pace that outstrips income growth, homeowners in this demographic often find themselves asset-rich but cash-poor.

Traditional banks, with their stringent serviceability criteria, that typically focus more on income and less on assets, leaving many borrowers unable to access the equity tied up in their homes – to create wealth or capture life’s opportunities.

This situation is exacerbated by the fact that mid-life Australians might be simultaneously managing the mortgage on a family home, funding renovations, supporting children’s education, or dealing with the financial implications of significant life events such as divorce.

The result is a notable gap in the market for financial solutions that acknowledge and cater to the unique needs of this age group, who may be asset-rich but require more liquidity than their current financial arrangements allow.
Cheryl O’Neill is a seasoned property flipper, having renovated and sold several family homes.

She recently restarted her banking career after a 10-year stint raising three young children. But, despite having proceeds from a divorce, she couldn’t get a traditional mortgage and paid cash for each house. Then she hit a roadblock with her current fixer-upper, a stately home in the heart of the Sydney beachside suburb of Coogee.

“I finally got a small bank mortgage, but I was knocked back when I applied for funds to renovate. The bank was only prepared to consider my income, not my assets,”

While she could have gone with a low-cost renovation, she knew a quality job would produce a better return when the property was sold. After the sale, it would also allow her to buy another property in the same neighbourhood to accommodate her big family.

“I needed another option,” she says.

Enter, Midkey - a new and innovative non-bank lender providing loans where all principal and interest is paid at the end of the loan. Additionally, Midkey’s loans have no fixed timeframe to repay; they can be voluntarily repaid in part or in full at any time; however, typically, borrowers only need to repay when they sell their property.

The brainchild of a pair of former Macquarie Capital and Credit Suisse bankers, Midkey is a home loan targeted at Australians in mid-life. This is generally a period when servicing large debts, such as the mortgage on a family home and facing many mid-life costs.

“Midkey makes sense because I can use the equity from my house to generate cashflow, which the banks wouldn’t let me do,” she says.

“I have finally found a solution that works and allows me to keep working towards my financial goals. My monthly costs don’t rise so I can pay school fees and keep my kids in the home, suburb and community that supports them.”

Midkey co-CEO and co-founder Richard Young says: “Our aim was to bring a new and innovative solution to allow homeowners to unlock home equity to make important purchases or investments and pay back the funds whenever they are ready.”

In some cases, a Midkey loan can reduce the need for borrowers to prematurely sell their home or other investments.

Higher interest rates and cost of living are prompting more borrowers to seek alternative funding sources. They may be facing cash flow issues, or they may want to take advantage of life’s opportunities.

Of course, if a borrower’s income allows them to access additional traditional debt, this may be an option. But, because a Midkey loan primarily relies on a borrower’s net assets, the non-bank lender can often lend when traditional lenders cannot.

So what does it cost? At the end of the loan, the borrower will pay the initial borrowed amount, along with the accumulated simple interest (at an approximately 1 to 2 per cent higher rate than a typical home loan), and an innovative fee called the deferral fee.

The deferral fee is linked to the home’s change in independent valuations over the life of the loan. For example, if a homeowner originally borrowed, say, 10 or 20 per cent of the value of their home, the deferral fee would be 10 or 20 per cent of any increase in home value. If there’s no increase in value, there’s no deferral fee.

At the beginning of the loan, there is an establishment fee and the borrower will pay all valuation costs. If a homeowner has an existing home loan and at least 20 per cent home equity, they can use a Midkey as a second mortgage.

There is a minimum loan amount of $100,000 and the home will need to be located in a greater capital city. Midkey is not currently lending to Melbourne or Darwin.

An attractive feature of the Midkey loan is the broad range of uses. Other Midkey borrowers are paying off debt, reducing their regular payments and improving their cashflow.

“With the help of a Midkey loan, one recent borrower is now able to expand their family with a new baby on the horizon as well as buy an investment property,” says Young.

“A mother has helped her daughter buy her first three-bedroom house close to work, which is a much better home and investment than the small, one-bedroom apartment she was originally considering with her smaller deposit.”

“Since the average mid-life homeowner bought their first property, property values have generally increased faster than their income. This means they often have excess equity in their home, but bank serviceability requirements mean traditional debt is not available to them,” says Young.

“Midkey provides flexibility that hasn’t previously been an option for Australians in mid-life.”

“We are changing lives, which makes us extremely proud.”