Midkey co-founder Richard Young
Midkey, a fintech funder with vaulting plans and a minimal loan book, is widening the reach for its idiosyncratic, and pricey, simple interest loans aimed at the most affluent cohorts in the mortgage market.
Borrowers in Perth and Canberra will now be able to apply, which will stretch Midkey’s funding lines – which so far amount to only $50 million. However, Midkey is still not lending in Victoria.
Launched in early 2023, Midkey labels its product as “the first of its kind”.
Midkey says it “enables responsible ‘asset-rich’ but ‘cash-poor’ homeowners with existing debt to borrow up to 35 per cent of their property’s value, without monthly payments.”
Founded in 2021 by former Macquarie Capital banker Richard Young and ex-Credit Suisse executive Scott Collison, the non-bank lender raised its first $50 million from
international investors, high net worth investors and family offices. A second raise is underway.
With almost all of the initial raise deployed “business is excellent” Richard Young told Banking Day yesterday.
“We thought the product would resonate with what we believed would be a significant market.”
Drawing on work by the consultancy Digital Financial Analytics, Midkey estimates the target market as being in the tens of billions.
“When we really put the accelerator down, and build trust and education, we’ll see a huge step up in money deployed” a confident Young said.
The firm has advanced around 100 loans at an average $500,000.
“In 18 months, most probably, we’ll have $300 million deployed.” Young said.
Borrower eligibility is confined to applicants with an existing mortgage and “at least 20 per cent useable equity.”
There are echoes of shared equity in the product design. At the end of the loan, a fee is paid. This fee is a proportion of any increase in the property’s value over the life of the loan.
For example, if a Midkey loan is 20 per cent of the home’s value at the start of the loan, the fee at the end of the loan is 20 per cent of any increase in the property's value. If the property’s value does not increase, no proportional fee is paid.
On the other hand, Midkey does not participate in downside risks on property values.
At present, the simple interest rate on a Midkey loan is 7.6 per cent, a spread of 3.35 per cent to the RBA cash rate.
Based on 40 years of property price history, and its fees, Midkey is pitching an investor return in excess of 12 per cent.
Rather than warehouse funding, in the manner of most non-bank lenders, Midkey operates under an asset management model.