Investor relationship
Investor
The investor provides funds and receives the rights stated in the HomeFund terms.
How it could work
HomeFund would be a claim on a bank, not ownership of mortgages.
At its simplest, an investor would provide money to an issuing bank for a defined term. The bank would issue a legal claim, attribute or secure the funding against residential mortgage activity according to the chosen structure, continue to manage the mortgages and make the promised payments under the product terms.
The bank would retain mortgage underwriting, arrears and credit-loss risk. The investor would not select individual loans or receive borrowers’ mortgage repayments directly.
That common description is only the starting point. A term deposit, a senior unsecured note and a mortgage-covered note create materially different rights, protections, insolvency outcomes and early-exit risks.
No structure has been selected. The diagrams on this page explain controlled research options, not approved product terms.
Start with the legal relationship
The customer’s first question is not “which mortgages?” It is “what does the bank owe me?”
Under the current design direction, the investor would not become a lender to individual home-loan customers.
The investor would hold a claim created by the HomeFund legal structure. Depending on the structure, that claim could be:
- a deposit account claim against the authorised deposit-taking institution;
- a senior unsecured debt claim against the issuing bank; or
- a bank debt claim supported by an identified residential mortgage cover pool.
The residential mortgage loans would remain assets of the bank or the relevant banking group entity. Borrowers would continue to owe their repayments to the bank under their existing loan contracts.
HomeFund therefore involves two separate relationships:
Funds: Investor to issuing bank
Contractual rights: Issuing bank to investor
Issuing entity
Issuing bank
Creates the investor claim and continues to hold and manage the mortgage relationship.
Home loans: Issuing bank to borrowers
Mortgage repayments: Borrowers to issuing bank
Mortgage relationship
Residential mortgage borrowers / mortgage portfolio
Home-loan customers continue to borrow from and repay the bank. Their contracts do not become contracts with HomeFund investors.
The connection between those relationships must be defined, evidenced and described without implying rights that the investor does not have.
The proposed flow
One balance-sheet flow sits beneath three different legal structures.
Cash / funding flow
Contractual or reporting obligation
Cash / funding flow
Step 1 — The investor commits funds
The investor chooses an available HomeFund issue or term and provides money to the bank.
The minimum amount, term, return, fees and eligibility have not been approved.
Contractual obligation
Step 2 — The bank creates the legal claim
The exact claim depends on the validation cell:
- a deposit;
- a senior unsecured note; or
- a mortgage-covered note.
The product name does not determine the legal form.
Cash / funding flow
Step 3 — Treasury receives and manages the funding
The funds enter the bank’s funding and balance-sheet management process.
A longer contractual term may give Treasury greater certainty over when the liability matures. That benefit is not automatic and must be measured after recognising the source of the money, displaced deposits, hedging, liquidity and every product cost.
Reporting or structural obligation
Step 4 — The mortgage connection is applied
The bank could:
- state a residential mortgage-funding purpose;
- allocate and assure an equivalent amount against eligible mortgage funding;
- support the obligation with an identified mortgage cover pool; or
- use a different asset-interest structure.
Only the first three levels remain active in the initial structural work. Direct or securitised mortgage exposure is not the current starting direction.
Bank operating responsibility
Step 5 — The bank continues to manage the mortgages
The bank continues to:
- approve and price home loans;
- collect repayments;
- manage arrears;
- recognise provisions and credit losses;
- hold required capital and liquidity; and
- operate under its ordinary prudential and risk frameworks.
Under the current direction, mortgage losses remain with the bank rather than being passed through to HomeFund investors.
Contractual payment obligation
Step 6 — The bank makes the product payments
The investor receives the return promised by the chosen legal claim, subject to its terms.
The return is paid by the bank. It is not a direct distribution of interest from selected mortgages.
Contractual or market outcome
Step 7 — The claim matures, transfers or is otherwise dealt with
At maturity, the bank would owe the amount specified in the legal terms.
Before maturity, access would depend on the structure and the available mechanism. An early transfer price may be below the original investment, and a buyer or bank repurchase may not be available.
What does not flow directly to the investor
Mortgage purpose is not mortgage cash-flow ownership.
Under the current active directions, the investor would not directly receive:
- a share of a borrower’s monthly repayment;
- a selected mortgage’s interest margin;
- ownership of a home loan;
- ownership of the borrower’s property;
- a right to choose borrowers or loan types;
- a right to service or enforce mortgages;
- a first-loss or pass-through mortgage exposure; or
- proof that the bank made additional home loans because HomeFund existed.
Those features would require a materially different structure and risk allocation.
This distinction matters because phrases such as “mortgage linked”, “housing backed” and “funding home lending” can describe very different legal and economic arrangements.
One proposition, three validation cells
The customer promise changes with the legal form.
Cell A — Purpose-branded term deposit
The investor places money in a fixed-term deposit with the bank. The bank applies controlled mortgage-funding attribution and pays the agreed deposit return.
- Potential strength
- The claim is familiar and may provide the clearest path to eligible-deposit and Financial Claims Scheme treatment, subject to confirmation for the exact account and holder.
- Primary weakness
- It may be only a more expensive term deposit. If customers transfer persistent, lower-cost balances already held by the bank, the product may create little or no incremental funding value.
- Before maturity
- Access would follow the deposit terms. Early withdrawal, notice, adjustment or refusal rights would need to be stated clearly. Transfer to another investor is not assumed.
- Current status
- Mandatory baseline / potential kill comparator
Cell B — Senior unsecured retail note
The investor purchases a fixed-term senior obligation of the issuing bank. The bank attributes the proceeds to residential mortgage funding under the chosen control framework.
- Potential strength
- It provides a clearer investment form and hard contractual maturity. Investor-to-investor transfer may be possible without changing the issuer liability.
- Primary weakness
- It would likely be an issuer exposure outside the Financial Claims Scheme. A sale before maturity would occur at market value and could be below the original investment.
- Before maturity
- A buyer, price and market depth would not be guaranteed. Any bank repurchase would be separate from investor transfer and subject to explicit terms and capacity.
- Current status
- Leading investment-form validation cell
Cell C — Mortgage-covered retail note
The investor purchases a bank obligation supported by an identified residential mortgage cover pool.
- Potential strength
- The mortgage connection and security could be stronger and more verifiable than a purpose statement or internal allocation.
- Primary weakness
- The structure adds collateral, encumbrance, legal, reporting, valuation, assurance and operating complexity. It must compete with the bank’s existing covered-bond capacity and economics.
- Before maturity
- Transfer would still occur at market value unless the terms state otherwise. Cover-pool support would not itself guarantee early access at the original amount.
- Current status
- Conditional validation cell
These cells are not three versions of the same product. They are different legal claims that must be assessed under the same customer, Treasury, legal, prudential, accounting, tax, conduct and operating assumptions.
Four meanings of “linked to mortgages”
The strength of the claim depends on the linkage level.
Level 1 — Purpose statement
Active structural researchThe bank states that the funds are intended to support residential mortgage funding.
- What it may provide
- A clear purpose and public reporting.
- What it does not provide by itself
- Segregated assets, security, ownership, borrower cash flows or proof of additional lending.
Level 2 — Controlled allocation and assurance
Active structural researchThe bank identifies eligible mortgage funding or assets equal to the relevant amount and maintains an auditable allocation and reporting process.
- What it may provide
- Stronger evidence that the funding has been attributed consistently.
- What it does not provide by itself
- Security over mortgages or a beneficial interest in mortgage assets.
Level 3 — Mortgage cover pool
Active structural researchAn identified pool of residential mortgage assets supports the bank obligation under a legally defined covered structure.
- What it may provide
- A stronger legal and collateral connection, subject to confirmation of ranking, over-collateralisation, substitution and enforcement rights.
- What it does not provide
- Ownership of individual mortgages or a guarantee that an early sale occurs at principal.
Level 4 — Direct asset or securitisation interest
Comparator, not initial directionThe investor holds a direct or trust-based interest in mortgage assets or mortgage cash flows.
- What it may provide
- The strongest direct asset connection.
- Why it is not the initial direction
- It would materially change the product, risk transfer, legal form, accounting, tax, disclosure and operating model. It is retained as a comparator rather than an active starting cell while the bank is intended to retain mortgage credit risk.
Stronger linkage may create stronger rights, or disproportionate cost and complexity.
A stronger mortgage link is not automatically better. It may create rights customers value, or it may add cost and complexity without improving informed consumer outcomes.
Where the return would come from
The product return would be a bank obligation, not a pass-through mortgage yield.
The bank earns interest from its mortgage portfolio and incurs the costs of deposits, debt, hedging, liquidity, capital, operations and credit losses.
HomeFund tests whether a defined retail liability could create enough funding value for the bank to pay an informed customer return after recognising:
- the source of the invested money;
- the cost and behavioural value of any displaced deposit;
- matched-term alternative funding costs;
- funds-transfer and liquidity pricing;
- hedging;
- legal, distribution and administration costs;
- protection and collateral costs;
- transfer or market-support costs; and
- stress outcomes.
Mortgage portfolio income and bank-wide funding economics
minus displaced funding value
minus hedging and liquidity
minus operating, legal and distribution cost
minus protection, collateral and market-support cost
equals maximum economically supportable customer return
Customer payment is a contractual bank obligation. It is not direct mortgage-interest pass-through.
The customer return would be set by the product terms for a specific issue or deposit. It would not automatically move with a particular mortgage rate or the average interest charged to home-loan customers.
The original approximately 5 per cent concept remains only a controlled consumer-research cell. It is not an approved return, forecast or pricing rule.
The commercial condition remains:
The maximum return the bank can support must be at least as high as the minimum return an informed customer requires.
Where that corridor does not exist, the issue should not proceed in that form.
What “principal protection” could mean
Protection at maturity and value before maturity are different questions.
| Protection or value concept | Relevant structure | What may be protected or owed | What remains exposed | Validation required |
|---|---|---|---|---|
| Eligible-deposit protection | Purpose-branded term deposit | For a purpose-branded term deposit, principal rights would arise under the deposit contract. | Financial Claims Scheme treatment would depend on whether the exact account is an eligible protected account, the account holder, the issuing authorised deposit-taking institution and the applicable scheme limits and rules. | This treatment cannot be assumed for either note structure. |
| Issuer promise | Senior unsecured note | For a senior unsecured note, principal due at maturity would be an obligation of the issuing bank. | Its value would depend on the contractual terms, legal ranking, bank solvency and resolution or insolvency outcomes. | A promise by the bank is not separate insurance against failure of that same bank. |
| Cover-pool support | Mortgage-covered note | For a mortgage-covered note, the investor may have the bank obligation plus rights associated with a defined cover pool or security structure. | Cover-pool support does not create ownership of individual mortgages or automatically protect an early transfer price. | The exact priority, recourse, collateral coverage and enforcement mechanics require specialist confirmation. |
| Early market value | Any structure exited before maturity | None of these maturity arrangements automatically protects the price of an early transfer. | Interest-rate changes, bank credit conditions, market liquidity and remaining term could cause the market value to fall below the original investment. | “Principal due at maturity” must never be presented as “principal available at any time”. |
The matrix compares distinct rights and exposures. It does not present any outcome as unconditionally protected.
Holding, transferring, repurchasing and redeeming are different
“Liquidity” is not one mechanism.
Hold to maturity
The investor retains the claim until its contractual maturity and receives payments according to the terms.
- Who supplies cash
- The bank pays according to the terms at contractual maturity.
- Issuer liability
- The liability continues until its contractual maturity and then ends according to the terms.
- How price is determined
- Payments are determined by the terms rather than an early market transaction.
- Effect on contractual tenor
- This is the clearest way to preserve the intended term, but it may not suit customers whose circumstances change.
- Principal-at-par status
- The bank owes the amount specified in the legal terms at maturity.
Early withdrawal from a deposit
The customer seeks access under the deposit terms.
- Who supplies cash
- The bank, where access is available under the deposit terms.
- Issuer liability
- The deposit liability ends or reduces according to those terms.
- How price is determined
- Notice, loss of interest, adjustment, hardship treatment or restrictions would depend on the exact deposit design.
- Effect on contractual tenor
- Early access shortens the intended term.
- Principal-at-par status
- It is not an investor-to-investor sale, and access at principal is not assumed.
Investor-to-investor transfer
One investor sells the note to another investor.
- Who supplies cash
- The buyer supplies cash to the seller.
- Issuer liability
- The issuing bank’s liability and maturity may remain unchanged, while ownership and price change.
- How price is determined
- The price is determined by the transaction and may be above or below the original amount.
- Effect on contractual tenor
- The bank’s contractual liability may continue to the original maturity.
- Principal-at-par status
- A buyer, price and market depth would not be guaranteed.
Issuer repurchase
The bank purchases its own obligation from the investor.
- Who supplies cash
- This supplies cash to the investor.
- Issuer liability
- The purchase may extinguish the liability.
- How price is determined
- Any bank repurchase would be subject to explicit terms and capacity.
- Effect on contractual tenor
- Repeated or expected repurchases can reduce the funding benefit and create conduct, accounting, liquidity and stress risks.
- Principal-at-par status
- A bank repurchase at principal is not unconditional.
Redemption
The legal obligation ends and the bank pays the amount required by the terms.
- Who supplies cash
- The bank pays the amount required by the terms.
- Issuer liability
- The legal obligation ends.
- How price is determined
- The amount is determined by the terms.
- Effect on contractual tenor
- A customer right to redeem early can shorten the effective term and must not be confused with market transfer.
- Principal-at-par status
- Any payment at principal depends on the final legal terms.
The initial direction does not permit an unconditional bank buyback at principal.
What could happen before maturity
Four scenarios show why legal tradability is not assured liquidity.
Scenario 1 — A normal investor transfer
- Event
- A buyer is available and agrees a price.
- Investor choice
- The seller receives the market price. The new investor holds the claim.
- Bank obligation
- The bank’s contractual liability may continue to the original maturity.
- Residual risk
- The transaction depends on a buyer and an agreed market price.
Scenario 2 — The market price is below principal
- Event
- Interest rates, the bank’s credit spread, remaining term or market conditions have changed.
- Investor choice
- The investor may sell at a loss, wait, or use another mechanism if one is available under the terms.
- Bank obligation
- Principal due at maturity does not protect an early market price.
- Residual risk
- The market value may remain below the original investment before maturity.
Scenario 3 — No acceptable buyer is available
- Event
- A legally transferable note can still have little practical liquidity.
- Investor choice
- The investor may need to hold the claim, accept a lower price or wait for a later opportunity.
- Bank obligation
- The bank is not automatically required to intervene.
- Residual risk
- A buyer or acceptable price may not be available.
Scenario 4 — The bank offers a limited repurchase
- Event
- The bank may choose to purchase within stated limits, windows or conditions.
- Investor choice
- The investor may accept the offer if it is available under its stated terms.
- Bank obligation
- That decision must be distinguished from a customer right.
- Residual risk
- Capacity may be reduced or suspended, particularly under stress, unless the final legal terms provide otherwise.
A fair design must explain who supplies cash, how price is set, what happens to the issuer liability and what changes in stress.
What the investor would need to see
The product cannot be understood through a headline rate and a mortgage label.
Before investing, a customer would need one coherent explanation of:
Legal form
The exact deposit or security and the issuing entity.
Return
The rate or formula, payment timing, fees and circumstances in which payments change or stop.
Principal
Who owes it, when it is due, its ranking and every condition attached to the maturity promise.
Financial Claims Scheme position
Whether the exact product is eligible, ineligible or still awaiting confirmation.
Mortgage linkage
The implemented linkage level, the allocation or collateral method, reporting and the rights the investor does and does not receive.
Term
The maturity date, earliest permitted exit and the consequences of leaving early.
Transfer and repurchase
Who may buy, how price is determined, whether a market maker exists, capacity limits and stress conditions.
Issuer and resolution risk
What happens if the issuing bank weakens, enters resolution or fails.
Tax and accounting for the investor
The expected treatment of income, disposal, transfer and any discount or premium, subject to specialist advice and individual circumstances.
Alternatives
A fair comparison with savings, term deposits, bank debt, diversified fixed income, mortgage or private-credit funds and no investment.
If those matters cannot be shown together in a form customers can accurately explain, the mechanics are not sufficiently clear.
What the bank would need to operate
A simple customer proposition can require a substantial controlled operating model.
The bank would need to coordinate:
Existing bank infrastructure may support parts of this model. That does not prove the model is simple, low cost or viable.
Where the mechanics could fail
The page is useful only if the flow can be rejected.
Rejection or simplification is a valid outcome.
Stop or redesign
The legal form and customer story do not match
An investment is described like a protected deposit, or mortgage-purpose language implies rights that the legal terms do not provide.
Stop or redesign
The mortgage link cannot be evidenced
The bank cannot maintain an auditable allocation, reporting or collateral process proportionate to the customer claim.
Stop or redesign
Maturity protection is confused with early value
Customers continue to believe they can always recover the original amount before maturity.
Stop or redesign
The liquidity design removes the funding benefit
Early redemption or expected bank repurchase shortens the effective term or creates stress outflows.
Stop or redesign
The return source cannot be explained fairly
Customers interpret the return as mortgage interest pass-through or assume that mortgage performance directly determines their payment when the legal claim says otherwise.
Stop or redesign
The operating model is disproportionate
Registry, valuation, collateral, disclosure, servicing and assurance costs exceed the value created.
Stop or redesign
Specialists validate different versions
Legal, Treasury, accounting, tax, prudential and consumer conclusions rely on inconsistent assumptions.
Stop or redesign
A simpler product provides the same value
A conventional term deposit or existing bank debt product delivers clearer customer rights at lower cost.
Current mechanics conclusion
The common flow is understandable. The final rights are not yet settled.
HomeFund can be described at a high level:
- an investor provides funds to a bank;
- the bank creates a defined legal claim;
- Treasury manages the liability and applies the chosen mortgage-linkage controls;
- the bank retains and manages mortgage credit risk;
- the bank makes the contractual product payments;
- principal is due according to the maturity terms; and
- early access depends on a separate, explicitly defined mechanism.
That sequence does not select a legal structure or validate the proposition.
The decisive questions remain:
- Is the claim a deposit, unsecured note or covered note?
- What mortgage linkage can be verified?
- Who provides protection and under what conditions?
- What happens before maturity?
- Can customers understand the distinction between maturity value and early value?
- Does the mechanism create incremental bank value after every cost?
- Do all specialists assess the same product?
Until those questions are answered, HomeFund remains three controlled validation cells rather than one product.