Adelaide Bank’s shared equity home loan
The Adelaide Bank is the first bank in Australia to launch a shared-equity home loan which could make property ownership easier, but analysts warn it could boost house prices.
The Shared Equity Mortgage [Equity Finance Mortgage] is a home loan product that 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.
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The loan effectively allows people to buy a house up to 25 per cent more expensive than is possible under a traditional home loan.
The EFM is an ideal home loan for a first-time buyer lacking the full finances required for entry into the home-owner market
Mr Small said.
“If and only if the property increases in value will the lender be entitled to a share of the capital gains.”
If the house loses value, and the bank absorbs 20 per cent of the capital loss, it was effectively a negative interest rate,
General Manager of Adelaide Bank Mr Small said.
He said the new loan would allow people to buy homes up to 25 per cent more expensive and cut 20 per cent off the cost of their mortgages.
Rismark managing director Christopher Joye said the key target market were people who were priced out of the home ownership market, those who already had a mortgage but wanted to free up income, or those who wanted to buy a larger home.
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.
Australian Consumers’ Association spokesperson Nick Coates said consumers needed to make sure they knew what they were signing up for.
“As shared appreciation mortgages become more widely available the things that consumers need to watch on them are how much interest they pay on them,” he said.
“By that I mean what it is at the end when you work out how much the house has appreciated.
“The critical thing there is you are satisfied with the valuation and you believe the valuation reflects the value of your house.”
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