author: unknown
Hearing the word 'mortgage' always makes me wince. Words like oppression, fear and 'will-I-be-dead-before-it's-paid-off?' come to mind. I can smell my mortgage broker's polyester shirt and hear the life-threatening sound of the pen signing away my life's earnings.
But when I heard about 'shared-equity mortgage', no such fears invaded my senses. All I could think was, 'that's interesting', 'good idea' and 'can't-wait-to-see-if-and-when-it-will-ever-happen'.
The day is nearing for the Australian launch of shared-equity mortgages -- a new financing arrangement allowing people to borrow 20% of the value of a house, interest-free.
So what's the catch?
You have to pay 40% of the capital gain on the house back to the lender when you eventually sell the property.
Some people might not find this such an enticing idea, but these shared-equity mortgages will be available through an Adelaide bank and mortgage brokers when launched in the next few weeks.
You can read more about these shared equity mortgages in this wonderful story by Simon Hoyle or this one by The Australian's Anna Fenech. If you want a basic explanation of them, check out this slide show I made (you'll have to be a quick reader because my mastery of technology didn't allow me to make this slideshow work terribly well -- thank God for the stop button).
The finer details have yet to be announced -- but Rismark founder Christopher Joye has confirmed the shared-equity mortgage product (also called an EFM) will launch soon.
The shared-equity mortgage works as a second-mortgage, as most people will still need a traditional mortgage to purchase the remaining 80% of the property. Alternatively, this type of mortgage might appeal to income-poor, asset-rich retirees who don't want to risk using a reverse-mortgage.
Apparently there will be no penalty on the borrower if property prices actually fall -- they will simply repay the interest-free loan. There will also be a renovation provision, to allow property owners to renovate their property and recoup the "capital improvement cost" later on.
After I accidentally entertained a press conference by phoning in to what I thought was a private line and admitting I work from my spare bedroom in my pyjamas, Rismark and RP Data announced the launch of new property price indices and a residential property derivatives trading market.
Before your eyes glaze over at this financial news, this launch is the first stage of Rismark's planned roll-out of a range of innovative residential property products. These new products could eventually change the way we buy residential property, offering things like Home Value Protection Insurance to allow homebuyers to insure against the risk of falling property prices.
Property analyst Michael Matusik says he applauds such ideas as one way to break the deadlock of the affordability crisis. "Affordability won't improve overnight, but the idea is the tip of the iceberg as one way to make owning property more possible for people," he says.
So what do you think? Would you be interested in a shared-equity mortgage? Will they work to give more people a leg-up into the property market?
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