Another option for those wanting to buy
Liverpool Champion
June 2007
Borrowers with Equity Finance Mortgages are feeling less pressure than their standard loan counterparts as housing affordability puts a squeeze on home-owners…Sydney single parent Brony Black felt home ownership was moving further out of her reach and wanted to act. Unimpressed by the restrictions of traditional loans, she researched financing options hoping to break free of the rental market. "I've looked at over 100 places in the last two years hoping to buy a comfortable home for my family," she said. "I was able to borrow enough for a two bedroom unit in Sydney but with two teenage children in high school, I needed to purchase a larger unit to accommodate all of us. Buying a three bedroom unit was out of my reach because the repayments would've competed with my school children's school fees and family expenses." She saw a newspaper add about EFMs and called her broker to discuss. "Securing the EFM was relatively easy. My broker arranged for the loan to be processed immediately after I bought by property at auction," she said. "The EFM was by far the bets solution. It let me get out of the rental market, buy the property I wanted and give my family the stability of living in our own home.
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Equity Finance Mortgages
InfoChoice Money Facts Magazine
May 2007
Equity Finance Mortgages ('EFMs') are a radical new addition to the home loan landscape. An EFM provides you with up to 20% of the purchase price of your home, with no ongoing repayments and no interest for 25 years. In return for no regular repayments, the EFM lender shares in the property's future gains or losses. In effect, the EFM lender acts as a silent investor sharing in the rises and falls in your property's value. In this way, EFMs work to improve the affordability of housing with the byproduct of aligning the interests of borrowers and lenders: simply put, the lender only does well if the borrower does well; if the borrower does badly, the lender does badly.
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Carter urges NZ banks to consider shared equity schemes
Hon Chris Carter
16 March 2007
Housing Minister Chris Carter today urged New Zealand banks to consider introducing shared equity products similar to that announced by the Adelaide Bank in Australia yesterday…"This scheme seems to be broadly similar to the kind of shared equity scheme the Labour-led government is considering introducing in New Zealand, although the Adelaide Bank appears to be taking a larger share of the profits when a house is sold," Mr Carter said. "I would urge New Zealand banks to also consider offering shared equity products here. They have considerable potential to assist modest income first-home buyers to access high priced metropolitan housing markets…Mr Carter said if private providers introduced shared equity products alongside the scheme being developed by the government, the number of young households that could be assisted in to homeownership would be significantly increased…"Many of our banks have made phenomenal profits from the housing boom over the past five years. Exploring these schemes would be a good way to demonstrate their social responsibility."
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New loan shares the burden
Sunday Herald Sun
1 April 2007
ANNIE Percy wants to buy an apartment in Melbourne without compromising her lifestyle or selling her Adelaide home. She has opted to take a shared equity mortgage which involves the borrower sharing a stake in the property. With the new loan product, Ms Percy's lender will provide an interest-free loan for up to 20 per cent of the property's value. In return, Ms Percy agrees to give the lender up to 40 per cent of the property's growth in value when she sells or refinances into another loan. For Ms Percy, 34, the loan means she can buy a property of a better quality and higher price than she would otherwise have been able to afford. For many others, the loan means they can buy a property sooner with a smaller deposit. The loan, also known as an equity finance mortgage, allows borrowers to reduce their up-front costs and repayments by up to 20 per cent. So someone who would traditionally take a $380,000 loan to buy a $400,000 property can now have a normal $300,000 loan and an $80,000 interest-free equity finance mortgage. Ms Percy, a physiotherapist, said by having a smaller interest-bearing loan, she would be able to pay more off it. And the interest-free component of her loan would bolster her borrowing power to help her buy the property she wants. "I will be able to buy an apartment that is bigger, or with better renovations or in a nicer group than I would be able to get otherwise," she said. What does she think of having to give some of her capital gain to her lender? "It was not my money in the first place," she said. "And it means I will be making more on this property because it will be of a better value than one that cost less." The loan has been launched by PMI Mortgage Insurance and global real estate funds manager Rismark International in a deal with Adelaide Bank. The chief executive of the Mortgage Industry Association of Australia, Phil Naylor, said equity finance mortgages were helpful in bridging the gap for people who did not have a full 10 per cent deposit, he said. A similar scheme has been launched by the British Government under a $2.5 billion home ownership scheme and the federal Opposition is believed to be studying the concept.
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Use equity to trade up to a $2.5m home
The Australian
24 March 2007
New shared-equity home loans can help you to borrow more, and buy better SO you want to "trade up" to a larger house in a suburb near your child's private school, but you want your loan repayments to stay the same so you can pay school fees. Or, perhaps you are recently divorced and you want to maintain your current lifestyle by staying in the same style of house or suburb. For instance, you want a $2.5 million house, 25 per cent more than you can currently qualify for on your income. Maybe you already own a large house interstate that you would like to keep as an investment property, but you want to buy a small property in a salubrious area where you now live and work. You don't want your cashflow or lifestyle to suffer. So what do you do? Adelaide Bank, in partnership with global real estate manager Rismark, has launched a version of a new breed of loan, generically known as a shared-equity mortgage -- offering immediate answers for the aspirational borrower…The most important factor in a comparison between shared-equity loans and regular mortgages will always be the rise in value of the property…Yet James Hickey, actuary and partner at Deloitte/Trowbridge, argues that borrowers should realise that it is not really a direct comparison: "The important distinction is that on most shared-equity loans you are not paying interest and you won't pay much to the lender if your property falls in value or stagnates," Hickey says. So the interests of borrower and lender are aligned. "In a standard mortgage, you pay interest regardless of whether your property rises or falls in value, so there can be a mismatch between interest rates and property prices. "It is still a win for the borrower if they get strong property growth, it's just that they have to share it."…"At all times, the borrower retains 100 per cent equity in the property, while all approved renovations can be separately valued with benefits wholly attributed to the borrower," Rismark managing director Christopher Joye says. "And, at all times, the borrower retains the right to 60 per cent of any capital gain."…Hickey maintains that this product is innovative and will provide borrowers with choice, if they understand it.
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Second property on the cards for couple
The Australian
24 March 2007
PHYSIOTHERAPIST Annie Percy, 32, and her partner Lee, 34, an engineer, are among the first borrowers to use the Adelaide Bank/Rismark Equity Finance Mortgage (EFM) launched last week…"We are new to Melbourne, and we don't really know the suburbs, but we knew that we wanted to live close to town for lifestyle reasons," she says. "Obviously, houses of this kind are expensive." Percy says that using an EFM mortgage means they can borrow more than they otherwise could, and have the best of both worlds. "We now have a budget of $400,000 to $420,000, whereas before we were looking at around $350,000 maximum. "This gives us a presence in a suburb we really like, that we know has good capital-growth prospects and will make us money, so we get a good return on our investment."…Sharing the capital gain with the lender is not an issue, because the couple have a strategy in place. "We don't mind at all sharing the capital gains with the lender. "We might if it was a 25-year mortgage but we think over 10 years you are not going to give away too much. That is, you are not going to cry when you give it away." Percy says they will review the situation again if their circumstances change -- "for instance, if we had children or needed to move again".
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Home buyers in squeeze
Sunday Courier Mail
Noel Whittaker
24 March 2007
Over the years, there has been a wide range of government initiatives such as home savings grants and low-interest loans to help young Australians into their first home, but they have often made the problem worse. In a tight housing market, when you increase the pool of buyers by introducing such initiatives, prices simply rise further. However, a new equity finance mortgage (EFM) from Adelaide Bank is worth consideration. It is available to owner occupiers who can put up a deposit of at least 5 per cent and involves Adelaide Bank providing an interest-free loan of up to 20 per cent of the purchase price of the property in exchange for 40 per cent of the capital gain - if the property declines in value, the bank picks up 20 per cent of the loss. The loan is for a maximum of 25 years and the owner is liable for all outgoings such as rates and insurance…At first glance, giving up 40 per cent of the capital gain in exchange for an interest-free loan for 20 per cent of the property value may seem extreme, but when you think about it, it's not so unreasonable. The bank has put itself into a gearing situation of 2:1 so it is going to want to earn at least 8 per cent on its money, as this is about what it could earn on a conventional mortgage with little risk…Therefore, the property has to appreciate by at least 4 per cent per annum for the bank to earn a minimum of 8 per cent on the interest-free loan. I appreciate that property in many areas has done far better than 4 per cent per annum in the past few years, but in the long term home prices have to stay in step with average weekly wages, otherwise we would reach a stage where nobody could afford one. In the past three years, average weekly ordinary-time earnings have increased from $948 a week to $1059 a week - just 3.7 per cent per annum. Obviously it is better to keep all the capital gain yourself if you have the resources to do it but surely getting a house in partnership with a bank is better than not getting one at all. Furthermore, in a flat market the EFM borrower may do better than one with a traditional loan. Just make sure you read the fine print and understand how it all works. Noel Whittaker is director of Whittaker Macnaught Pty Ltd, Australian Financial Services licensee No. 246519
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Equity trade-off for bigger home loans
Sydney Morning Herald
14 March 2007
A NEW mortgage has been unveiled that can boost a home buyer's spending power by a quarter, but the lender keeps 40 per cent of any capital gain. Australia's first shared equity mortgage in mainland capitals was launched by Adelaide Bank yesterday. Under the scheme, up to 20 per cent of the purchase value of a new home is funded by an "equity finance mortgage". In contrast to a traditional loan, the lender gets 40 per cent of any future capital appreciation, or 20 per cent of any capital losses, on the borrower's property as a substitute for a traditional interest rate…Dennis Orrock, from the consumer information firm Infochoice, said it was the most innovative product to hit the mortgage market in the past decade. "It's a product that will have a very broad appeal, especially to middle-class families wanting to upgrade to a bigger home or move closer to work or schools," he said. The chief general manager of Adelaide Bank, Stephen Small, said the product would target first-time buyers lacking the full finances for entry into the home-owner market. "Equity finance mortgages can be used by borrowers to buy homes that are up to 25 per cent more expensive than they might have been able to afford using a traditional home loan," he said…"Equity finance mortgages can also be used to help existing home owners lower their current monthly mortgage repayments by more than 20 per cent, reducing their ongoing debt servicing costs," Mr Small said…The new mortgage was developed with a real estate fund manager, Rismark International, which developed and patented the product…The equity finance mortgage is based on recommendations made to the 2003 Prime Minister's Home Ownership Task Force, chaired by Malcolm Turnbull - who is now the federal Environment Minister - before he entered Parliament. The governments of Victoria, South Australia and Western Australia have announced shared equity schemes. Last week Labor's housing spokeswoman, Tanya Plibersek, said it would consider a federal government role in shared equity schemes to assist low-income earners enter the housing market.
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Partnership launches shared equity mortgage
Australian Financial Review
14 March 2007
Adelaide Bank has teamed up with mortgage company Rismark International to offer Australia's first shared equity mortgage to home owners in all mainland capitals. The loans will allow home owners to avoid paying interest and principal repayments on part of their homes. In return, funds managed by Rismark will share in their capital appreciation…The mortgages are expected to appeal to first-time buyers struggling to get into the market and to first- and second-time buyers who want to upgrade. Retirees may also use the product to refinance their home loans and cut their monthly mortgage repayments…Rismark's head of wholesale funding, John Powell, said residential real estate had been accepted as an emerging asset class by super funds.
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New mortgage cuts costs, profits
The Australian
14 March 2007
WHAT is said to be the most innovative mortgage to hit the market in the past 15 years promises to cut the cost of buying a house by up to 20 per cent -- but the spoils will have to be shared with the bank…The Adelaide Bank/Rismark Equity Finance Mortgage is the nation's first such commercially available loan, although state governments have been exploring similar schemes to help low-income families. "Our research shows that Australian homeowners do not like the idea of the ownership process being polluted by others owning their home, so the borrower retains 100 per cent ownership of the home at all times, as well as 60 per cent of any capital appreciation," said Chris Joye, managing director of Rismark. "Any increase in the value of the home related to renovations carried out during the loan would also remain theirs." The target market is first-home buyers who can reduce their upfront costs by 20 per cent, existing homeowners who want to upgrade to a property that they would otherwise not be able to afford and people refinancing to reduce repayments. Mr Joye said shared equity mortgages were equitable for customers because the lender shared the rewards and the risks. "The borrower would retain 60per cent of the capital appreciation of their home and in most cases will not pay for capital loss," he said. Denis Orrock, of independent loan researcher Infochoice, said it was "the most innovative type of lending product" in 15 years.
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Shared-equity loan boom
The Australian
14 March 2007
SHARED-equity mortgages are expected to be the next big thing in home lending as lenders move to address affordability for first home buyers and those upgrading their homes, as well as the needs of retirees. The cost of buying a home could be cut by up to 20 per cent under the first commercially available shared-equity mortgage for Australian borrowers, launched yesterday by Adelaide Bank and Rismark…Denis Orrock, general manager of independent loan researcher Infochoice, said shared-equity loans could have a similar effect on the housing market as the entry of non-bank lenders…"Borrowers will no longer have to resort to 100 per cent-style home loans which put them into huge debt from day one," Mr Orrock said. "A potential downside is that if there's a sharp appreciation in house prices, borrowers will work out pretty quickly that they have to share it - but they should weigh that against having to pay zero interest on their loan."
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Key to an open door
Herald-Sun
14 March 2007
IS this new form of shared equity loan a silver bullet to fix the problem of housing affordability? Well, having put the new Adelaide Bank Equity Finance Mortgage product through a quick Fully Frank road test, the answer is maybe. The idea is to lower the bar for a first home owner by funding 20 per cent of the house with the interest free EFM. A conventional home loan and a deposit covers the remaining 80 per cent of the house value. The catch is that the issuer of the EFM gets to keep up to 40 per cent of the capital growth on the house. On the other side of the equation, if the value of the house goes down, the EFM issuer gets to share up to 20 per cent of the downside.
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Low-income loan carrot
Herald-Sun
14 March 2007
ADELAIDE Bank is the first bank in Australia to launch a shared equity home loan which it claims will make it easier for battlers to get into the housing market. The announcement came just a day after economic analysis released by the Federal Labor Party claimed housing affordability across the nation was in crisis. The loan product allows home owners to borrow as little as 75 per cent of the value of their home, after putting up a 5 per cent deposit. The other 20 per cent will be covered by what is called an equity finance mortgage or EFM. The borrower pays no interest or principal repayments on this 25-year mortgage, but when they sell the house, the bank gets 40 per cent of the total capital gains. On the upside, if the house declines in value, the bank absorbs up to a maximum of 20 per cent of the losses. The loan effectively allows people to buy a house up to 25 per cent more expensive than is possible under a traditional home loan. Real Estate Institute of Australia president Mark Sanderson said anything which helped people get out of the renting cycle and into home ownership was welcome.
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Equity mortgage revolution
Today Tonight
Channel Seven
It's never been harder to buy a house in Australia, but now a new-style mortgage is offering hope to first-time buyers and investors alike. Just putting a roof over your head can soak up more than a third of your weekly income, and even then you can't buy where you want because you just can't afford it. But what if you had a silent partner, who paid 20 per cent of the cost, and you didn't pay one cent in interest on that portion of your loan? It's called an equity finance mortgage, the latest attempt to make it easier for people to get a foot on the housing ladder…"Potentially it's the most innovative product to hit the mortgage market in at least the last decade," said Dennis Orrick from consumer advisory group Info Choice.
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Backing the burbs
5 November 2005
Simon Hoyle
Sydney Morning Herald
Australia's owner-occupied residential property market is worth an estimated $2800 billion but until now it's been an investment market all but closed to institutional investors. If institutional investors, including superannuation funds, wanted to invest in owner-occupied residential property, they had to do it indirectly. They could assemble portfolios of residential properties and rent them out, but tenanted property is not quite the same thing as owner-occupied property. They could lend money to people to buy a home, but mortgages are fixed-interest securities, and there's no way a mortgage lender can participate in the capital gain on an owner-occupied property. Investing in property developers and builders is, likewise, a derivative exposure. So investors in superannuation funds, while they might own their own homes already, have been missing out on an important source of potential capital growth and an asset class that could help diversify their retirement saving portfolios and hence reduce risk. A solution to the problem has emerged from an unlikely quarter: the 2003 Prime Minister's Home Ownership Task Force. Christopher Joye, who led the task force and produced a 378-page report on the subject, came to the conclusion that something was needed to bridge the gap between a ready source of funds - capital markets - and home owners. Joye's company, Rismark International, has established a joint venture with Macquarie Bank to source funds from capital markets and package them into a product that can be sold to home buyers. The Rismark team includes, among others, Richard Facioni, a former executive director of Macquarie Bank, Russell Aboud, a director of the Australian Stock Exchange and chairman of Ord Minnett, Sandra Donnarumma, previously the chief operating officer of InTech, Glen Bertram, a former UBS executive, and John McGee, a mortgage market expert. The vehicle Rismark and Macquarie have put together is the typographically tricky ARES fund: Advanced Real Estate Solutions fund. The fund intends to raise $1 billion from institutional investors, which it will then package up and provide to home buyers as EFMs.
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How to buy with others' money
11 March 2006
The Australian
THE costs of home ownership could be cut by 20 per cent under the terms of a radical zero-interest "equity finance loan" to be launched through major lenders from July. The idea for the loans arose in work carried out for Prime Minister John Howard's 2003 Home Ownership Task Force. Christopher Joye, who led the taskforce, now works as an executive director with Rismark, which has patents on the equity finance mortgage (EFM). For first home buyers who can't afford to buy a property and want to reduce upfront costs by 20 per cent (lesser or deposit, nil mortgage insurance, nil interest) the attractions are obvious. The product will also appeal to an ambitious, aspirational market which wants to buy a home 25 per cent more expensive than they otherwise could afford "It allows people the option of upgrading to a nicer, more expensive suburb -- if, for example, they wanted to be nearer their child's school," says InfoChoice general manager Denis Orrock. "Equity finance mortgages give asset-rich, income-poor retirees who want to access an equity release mechanism a safer option than a reverse mortgage," says Rismark executive chairman Richard Facioni. "In contrast to reverse mortgages, EFMs will always leave retiree borrowers with at least 60 per cent of the net equity in their home, irrespective of how high interest rates are, how fast property prices grow, or how long they live in their home."
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A house divided stands OK
23 July 2003
By Christopher Joye
The Australian
ON June 6 this year, I delivered a 378-page report to Prime Minister John Howard that advocated a variety of demand and supply-side approaches to radically reducing the costs of home ownership in Australia. At the heart of that effort lay the belief that it is time capitalism developed a more human face. For centuries now, businesses in need of funds have had access to both debt and equity. Yet for households wanting to expand, mortgage finance has been their only alternative. In an attempt to rectify the asymmetry between corporate and consumer capital markets, we recommended offering Australian families the option of using both debt and equity finance when purchasing their properties. In this way, aspirants could fund their housing needs with both a mortgage and a passive institutional partner which contributes equity (via a synthetic debt contract) to the dwelling in exchange for a claim on the prospective price movements, with no other monetary payments made between them. Importantly, occupiers would retain virtually all of the decision-making rights free and unencumbered, just as in traditional markets.
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Copyright 2007 Rismark International. Equity Finance Mortgages (EFMs) are a powerful new housing affordability tool also known as a “shared equity mortgage”. In combination with a traditional mortgage, EFMs can be used to cut the costs of buying a new home, to significantly reduce existing mortgage repayments, or to buy a materially larger home. All rights reserved. Fees, charges, terms, conditions and lending criteria apply. Full details are available on application.
EFM loans have been developed by and will be provided by Rismark International Funds Management Ltd ABN 15 114 530 139. AFS licence number 293881 (trading as Rismark International). EFM loans are offered in conjunction with certain traditional home loans offered by approved lenders and their originators. Rismark has appointed Adelaide Bank Ltd ABN 54 061 461 550 AFS licence number 240516(‘Adelaide Bank’) as an approved lender. Adelaide Bank and its originators (‘Adelaide Bank originators‘) will distribute and manage EFM loans. Iden Group has been appointed as an Adelaide Bank originator.
Rismark has appointed Permanent Custodians Limited ACN 001 426 384 ('Permanent') as lender of record, custodian and mortgagee for Rismark. This means Permanent will enter into the EFM loan contract and Mortgage on behalf of Rismark.® Equity Finance Mortgage (EFM) and EFM are registered trade marks of ARES Capital Management Pty Limited ABN 93 113 861 046. TM Equity Finance Mortgage is a pending trade mark of ARES Capital Management Pty Limited ABN 93 113 861 046. ARES Capital Management Pty Limited’s ABN 93 113 861 046 intellectual property relating to the EFM product is protected by Australian Innovation Patent Numbers 2005100 871, 2005100 869, 2005100 868, 2005 100 867, 2005 100 865, and 2005 100 864.