Shared Equity Mortgages

Shared Equity Mortgages - First Home Buyer Life Line or Equity Bonus for the Banks?

With the emergence of a housing affordability crisis in Australia the new ‘shared equity mortgage’ scheme for first home buyers and families is being touted as the new life line for prospective home owners.

A recent first home buyer survey in Australia conducted by Genworth Financial on 2000 adults discovered that 70% of participants surveyed would like to purchase a home within the next 3 years however only 43% of this group expect to be able to do so. A further 29% of non property owners in this group admitted that they believed it was unlikely they could save a deposit and cited rising rental costs as the main reason. Almost 66% of the first home buyers surveyed rent privately and one in four still live with their parents, the average age of the first home buyer was 27.

The survey findings concur with what many Australians already know that home ownership has become out of reach for the average Australian family and a helping hand is definitely needed to overcome this stigma.

One of the most recent housing affordability strategies is the ‘Shared Equity Mortgage’. Shared equity loans enable borrowers to purchase a bigger and better home than they would normally be able to afford. These types of loans are generally available for first home buyers and existing home owners who need relief from their mortgage repayments. The home owner takes out a 20% Equity Finance Mortgage (up to 40% is available) which effectively lowers their monthly loan repayments and frees up their cash flow.

When paying off the loan the borrower must pay the lender the original 20% plus 20% of the home’s appreciation as a substitute for no interest being charged on this portion of the loan over the loan term. If there has been no property growth or the property has declined in value then the lender will not receive any return on the loan or they may receive less than was initially lent to the borrower. Thus the lender shares in both the capital gains and the capital losses on the property. Because the shared equity loan is a mortgage product the lender never actually owns any part of the borrowers property.

The upside of the shared equity loan product is that first home buyers, individuals and families that faced little prospect of owning their own home do now have a life line available to them and this loan product may just be the one to realize the aussie dream of owning their own home. The downside is that you will need to share any equity gains in the property over the term of the loan or on the sale of the property with the lender. Ultimately the decision lays with the first home owner, if faced with a life time of renting the shared equity mortgage offers a viable option to home ownership.

© Rob Donald, Altrust Finance Group 30th August 2007
www.altrust.com.au

Rob Donald is a Mortgage Broker with over seventeen years experience in helping people arrange their finances. Rob is the business owner of Altrust Finance Group, a mortgage manager and trainer in the financial field he is regarded as one of the most knowledgeable mortgage brokers in Australia.

With a Diploma in Financial Services, Rob Donald draws on a wealth of experience in all facets of the lending arena. During his early years with finance Rob concentrated on arranging finance for first home buyers. Now with the changing marketplace Rob Donald is one of the leading non conforming brokers in Australia and has built a successful business with Altrust Finance Group providing a range bad credit non conforming loans both low doc and fully verified lending in Australia.

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