Equity Finance Mortgage

hi all
have a read of this part of the last link.
http://www.theaustralian.news.com.au/story/0,20867,21433805-5001942,00.html
In Britain, users of a similar product pioneered by the Bank of Scotland in the 1990s had this problem and started lobby groups when property prices raced ahead, but Hickey says "it was a far less generous product as far as borrowers were concerned and the lender had problems with funding it, so it was withdrawn". "It had a repayment factor of three times the gain whereas the Rismark one is two times the gain.

and this is my concern.
if you have 2.5 mil 95% borrowed for a property
you could not afford
but bought because you have 20% interest free and that interest free is not there
you are in very big trouble.
and yes it has happened before
so this is not a pilot, new or for that matter unusual product its just not been used in the resi market here.
I can't understand people saying that this is a major fund launch and it can't go under.
and you have westpoint,fincorp
why can't it go under.
is it that stable from people looking at it.
please tell me where you see the stability is.
its not a bank
adelaide bank is the first not the mezz lender
macq is the manager not the lender.
and perpetual is the under writer not the lender.
show me the security of the 20% funder.
would you accept mezz from a lender like this
come on guys.
you have alot of developers on this board and answer this question
if this was a mezz funder to your project
would you accept your mezz from a structure like this and have your 2 mil or three mil project at risk.
me no.
and if you say they are a big funder my answer is very simple.
the bigger they are
the harder they fall and the less chance you have of getting anything.
there are heaps of mezz funders out there that will put 2 mil in a project
and I can give you a list that when you come to get the 500k over, the 1 mil they have run out or are waiting for funding to come in to give to you.
usually very small family groups and they can and do go west.
but at least they have an income.
people seem to think that I don't like richard or this product well thats not true
I understand the product, I understand what it aimed at, and I think i know the motives behind the product.
what I don't understand is people can't understand or see what it is,
if you understand mezz funding and you understand that to survive you must make an income or have money comming in
and yet people are still saying that this is a rock solid investment.
and that I can't understand.
I would like richard as an financial planner
would he recommend people to invest in the fund that is supplying the cash to efm.
and what he would say with regards to cash flow and how he sees it staying alive.
mr joye did say that they are fund raising
well good please give us a bit of a run down on
how are you going to run the fund
where is the income to pay the telephone girl coming from.
we can ask mr joye and will get the its non of your business.
but richard you have put up this post.
you have not at this stage answered any of the question so far

so I will make it simpler for you.
and I would like not reteric just a yes or no will be fine.
as a financial advicer not a poster.
A.
would you recommend anyone for this efm loan having regard to all thats in this post to date.
B
would you recommend anyone to invest in rismark fund raising funds that will have no return.
c
and would you personally invest in the rismark fund raising funds for the efm loans.

for me I will give my answers
A no
b no
c definatley no
and for the other financial advicers out there or brokers
maybe over a cup of coffee you can answer the same question
I would be very interested in the one that says yes to any of the three.
and remember that this is an open board and if this does go west
I will be asking the same question in 6 months.
lots of people have said if only we had known to alot of thing well here it is.
I have told you my views and will leave this post
I will read with interest richards post.
for me I will pin my flag on this being a total calapse and I think alot of people are going to get hurt
and that is very unfortunate.
I don't see it running for more then 12 months
and I do think I will be drinking my coffee as I was when I heard of fincorp and I will be comming back here and saying I told you so.
hope I am wrong but I don't think I am
history has a problem in that people forget but history repeats.
good luck to anyone that has this loan, for me you are going to need it.
and check that the person that sold it or told you to take this loan does have indemnity insurance.
this is my view and is not financial advice
for that you need to go and see a financial advicer with insurance and who you can trust.
 
The lender gets 35% see:

They can borrow up to half the value of their properties and share up to 35 per cent of capital gains with the lender.
Hmm. I read it differently, that the lender gets 100% capital gains and because we are so nice we will let you 'share up to 35% with us'.

You may well be right, I haven't looked into it at all, but I couldn't imagine a bank offering 50% EFM and only taking up to 35% capital gains.

BR
 
Using the Rismark/Adelaide Bank EFM, where if you borrow 20 per cent of the house value the lender gets a 40 per cent share of the increase in the property value, a borrower could pay the equivalent of 4.5 per cent interest if a loan is taken for 10 years and the property grows at 2.5 per cent a year. However, the same loan in a property growing at 10 per cent a year will cost the equivalent of paying a 17.3 per cent interest rate. According to Infochoice, the interest rates on rival reverse mortgages range from 7.5 to 9.07 per cent.

From The Australian. Someone has done the sums for us.

BR
 
There was an article featured in the Sunday Herald Sun yesterday. Basically saying that people could now afford to buy a better quality home in an area where they'd like to live. There was a lady featured in the article who had just bought a home on Saturday. She said she didn't mind giving up the 40% in future capital growth as she had the home she wanted to live in, and 'besides it wasn't her money anyway'! I don't believe many of us on this forum would share her point of view!

At the end of the article a couple of financial reporters said it was better to save a deposit through the usual method and buy a house that the person could afford using a standard loan rather than the EFM.

I now wonder if property prices are going to escalate now due to this product - especially in the inner city areas as the product seems to have made this section of the market more accessible?
 
This product appears to be designed for home buyers more so than investors. The main benefit is the ability to purchase a more expensive home than you could otherwise afford, however depending on the lending criteria it may allow someone to get into the lower end of the market.

The downside for investors is the loss of CG on the sale of the property. This being the major attraction of investing in capital cities it is for me a big downside.

I assume the equity partner only carries the market risk. That is insurances, taxes, rates and any other costs involved in maintaining the property are carried 100% by the customer. This being the case it further errodes the return for an investor.

A clever twist on the conventional mortgage, and I'm sure we will see many similar products being offered but as an investor it's not for me.

Regards

Andrew
 
Andrew

There is no downside for investors as the product is not available at this stage for anything else but owner occupation.
 
Andrew

There is no downside for investors as the product is not available at this stage for anything else but owner occupation.

Investors can't get their hands on this wonderful product... outrageous. But as you point out "at this stage" so things may change.

How about the indirect effect of this type of product. Many investors are people who were once Mr & Mrs Joe Average (or Miss & Master), they purchase a PPOR and then later on invest by drawing down the equity within the PPOR.

This product although great for getting them into a home may limit their ability to invest later in life.

Regards

Andrew
 
Bargain Hunter

Very good point in your last sentence - losing up to 40% of your CG would have a seriously detrimental affect on your ability to build an investment portfolio.

Cheers
LynnH
 
I think the biggest problem with this product is not the 40% CG loss, in many parts of australia, CG is years away.

The problem is that in order to get the EFM, you have to take up a product that is at least 70 BP away from being competitive on your MAIN MORTGAGE. This will eat up any savings you gain on the 20% your EFM mortgage will save you.
 
Today Tonight were last night spruking EFM's as a way for people to get through the housing unaffordability issues. They are only a few months behind the eight ball but the popularity of EFM's must be rising.

Does anyone in game have an update on how the uptake of this is going?

BR
 
Spoke only last week to the GM at Rismark and I think they are very happy with the take up to date.

Volumes at this stage are about what they expected in Qld, WA but a lot higher than anticpated in Vic & NSW with loan amounts right upto the maximum allowable.

They have secured additional funding and I would not be suprised to see fixed rates offered in the next few months and within the next 6 months the product open to investors.

All in all steady as she goes.
 
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