John Howard’s legacy

The 2003 Prime Minister’s Home Ownership Task Force formed by then Prime Minister John Howard, fielded a large number of new ideas about increasing the affordability of home ownership in Australia. One of them has become a reality.

A new type of mortgage has been unveiled this year that can boost a home buyer’s spending power by 25%. Called an Equity Finance Mortgage, this new mortgage product will allow owner occupier home buyers to purchase a home up to 25 per cent more expensive than they might have been able to afford using a traditional stand alone home loan. Without paying more per month.

This is good news for first home buyers especially, you now have a better chance of gaining a toe hold in the housing market. Up-graders or itch cycle home buyers will also benefit, allowing them to head to more up-market address’s sooner.

The potential mortgage holder or home buyer must have a 5 per cent deposit. They must also qualify to service a conventional home mortgage equal to or less than 75% of the purchase/valuation price of the home. The rest of the purchase can be funded by an “Equity Finance Mortgage”.

What’s the catch? Well, one Bank is calling their offering a Shared Equity Mortgage, that is Bank speak for joint venture. Your lender is offering to do a joint venture with you. When you sell your house in the future you will have to share 40% of any gains with your lender. That’s right! 40% of the gain as a substitute for 25 years of loan repayments. It sounds to good to be true, so there has to be some devil in the detail and I strongly recommend you consult a quality Mortgage Broker.

It is worth a look, but get some advice. I for one will be exploring the possibilities.