Hi all[biggrin]
The followinng is taken from the Financial standard, can anyone explain its workings.
Super funds to back new home equity mortgage group
Friday, 22 Sep 2006 11:49AM
Superannuation funds are set to get behind a new home equity mortgage group, headed up by the former chief executive officer of Rothschild Asset Management, that will bring shared appreciation style mortgages to Australia.
Peter Martin together with ex managing director of JP Morgan and Goldman Sachs, Simon Winston Smith are targeting superannuation fund investors to raise $1 billion for their new venture, Greenway Capital (Greenway).
Greenway’s head of marketing and products, Samantha Clarke, said they will offer a “new generation home loan†with no monthly repayments, but a final repayment along with a division of the property’s growth over the term of the loan.
“People can make monthly repayments if they choose to by setting levels,†she said, “but in its purest form it is just a repayment at the end of the loan, or upon sale of the house.â€
Clarke added that the product effectively works the same way as a shared appreciation mortgage, which were offered to investors in the UK through the mid-1990s
Similar to reverse mortgages, Clarke said the product can be used as an equity release product, but added the main difference is there is no capitalisation of interest over the loan.
“Like reverse mortgages we offer a no negative equity guarantee,†Clarke said, meaning that the if the value of the loan exceeds the value of the property the owner cannot be forced out of their home.
“The major difference here is that it’s linked to property growth not interest rates, there’s no extra to repay above the value of the loan if our property growth is flat. If it does increase we share with the person the growth,†she said.
Clarke added that the product targets both baby boomers who are underfunded as they move into their retirement and people looking to take the next step and upgrade to a larger home.
“It is suited to those that are a bit younger than 40 and above, who want to move to a bigger home. In the case that they were looking at a home worth $1 million, Greenway puts down $500,000 and they put down $500,000 without any monthly repayment expectations but with the flexibility to make some repayments and to pay off the loan sooner if they want to.â€
While Clarke declined to name any potential investors, she said the group are currently in discussions with several “large Australian superannuation fundsâ€.
Regards
Bryce Inglis
AR282821Investment & Implimentation manager
Replies on this site are intended as general information only, as any specific investment solutions/advice must only be given in accordance with the requirements set out in the Financial Services Reform Act 2001 and the ASIC guidelines as set out in PS146.An appropriate professional should be consulted for specific advice
They lend you the money. When you sell the property you repay the debt plus a share of the capital growth.
Not sure if they will let Buy and hold investors use it [biggrin]
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Originally posted by Mortgage Hunter:
Not sure if they will let Buy and hold investors use it [biggrin]They claim they will!
Of course, you have to put in a minimum 50% of valuation (they don’t lend above 50%), and for that, they’ll take around 80% of the capital gain…
The problem would be finding the remaining 50%, assuming the title is held by Greenway.
So probably not so good as an investment tool.
Originally posted by foundation:Originally posted by Mortgage Hunter:
Not sure if they will let Buy and hold investors use it [biggrin]They claim they will!
Of course, you have to put in a minimum 50% of valuation (they don’t lend above 50%), and for that, they’ll take around 80% of the capital gain…
The problem would be finding the remaining 50%, assuming the title is held by Greenway.
So probably not so good as an investment tool.
Wow that is attractive ….
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi guys[suave]
Thanks for your contribution, but how do they make money to operate if repayments are not obligatory.
Greenway puts down $500,000 and they put down $500,000 without any monthly repayment expectations but with the flexibility to make some repayments and to pay off the loan sooner if they want to
I assume they would need to securitise the debt in some way to generate returns.
Regards
Bryce Inglis
AR282821Investment & Implimentation manager
Replies on this site are intended as general information only, as any specific investment solutions/advice must only be given in accordance with the requirements set out in the Financial Services Reform Act 2001 and the ASIC guidelines as set out in PS146.An appropriate professional should be consulted for specific advice
That sounds right.
They will lend the person money to buy property, with no repayments required, but their fee for this will be a percentage of the proceeds when the property is sold and your loan is repaid.
I wonder what percentage they would want. Funding the loan will be expensive, so they would want a high percentage i imagine.
Terryw
Discover Home Loans
Parramatta
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Hi all[biggrin]
“but a final repayment (unspecified amount) along with a division of the property’s growth over the term of the loan.(again unspecified )
They will lend the person money to buy property, with no repayments required, but their fee for this will be a percentage of the proceeds when the property is sold and your loan is repaid
Thanks Terry, but that may be in 20 years time, how do they pay wages ect in the meantime.I recall that Derivex used securitisation to raise additional funds to generate profits to operate and wonder if similar techniques are used here.
So will Nat join in or is she still enjoying her flying above the peasants lifestyle.
Regards
Bryce Inglis
AR282821Investment & Implimentation manager
Replies on this site are intended as general information only, as any specific investment solutions/advice must only be given in accordance with the requirements set out in the Financial Services Reform Act 2001 and the ASIC guidelines as set out in PS146.An appropriate professional should be consulted for specific advice
I see they are planning to use superannuation funds.
Perhaps they are looking for the payoff to be at a later date which would suit younger superannuation contributors?
I am the first to admit that sometimes these things aren’t as simple as they look.
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
“You’re contracted to us to give us back a piece of the capital gain,” Martin says. “The piece of the capital gain is larger than the percentage [of the original value of the property] you borrowed. If you borrow, say, 50 per cent, you will owe us a bit more than 80 per cent of the capital gain. If you borrow 20 per cent, you will owe us 35 to 37 or 38 per cent of the capital gain.”Martin says Greenway expects most borrowers will opt to borrow about 25 to 30 per cent of the value of their home. This would mean handing over about 40 per cent to 50 per cent of the capital gain you achieve when the property is sold. It should be noted that if your property’s value were to fall or remain constant then the amount you’d repay would be limited to the amount you’d borrowed.
In addition there is a “no negative equity” guarantee built into the mortgage, so even if you borrow up to the maximum allowed 50 per cent level the most you can possibly owe is the full value of your home.
The negative equity bit is funny – “even if you borrow up to the maximum allowed 50 per cent level the most you can possibly owe is the full value of your home”. So if your house is worth <50% of the original price, you can sell and walk away without debt… except you’ve already lost your 50%!
It sounds like the risk is freely handed to the borrower, and most of the profit, to Greenway.
Playing by these rules, I’d rather a lender than borrower be (to paraphrase the ole bard)…
F.[cowboy2]
Would banks do any favours for us poor struggling consumers?? Sorry dumb question. They have some of the smartest capitalist brains in the country & if they don’t they will pay for a consultant.
I don’t think this product will be a traditional loan in the ordinary sense. The funding cost will have to be built into the end pay-off which they can model based off historical growth data. There will/should also be a time limit on this. I think the superfund angle is whether this can be sold as an investment product.
Would you as a super fund take a punt and lend/invest your money into a portfolio of residential properties for a future capital pay-out? Or the bank could pay you a coupon and keep some of the increase. Theres quite a few possibilities actually. But believe me, there are no favours here. Financial institutions are pretty good with coming up with new products and ideas but its all the same – shifting risk from counterparty to another and creaming off the top, middle and sometimes even bottom layers nicely.
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