First shared equity mortgage released

$1 billion targeted in shared equity venture

Madeleine Collins

Wed 14 Mar 2007

Adelaide Bank and real estate fund manager Rismark International have released Australia's first private-sector shared equity mortgage product.

Rismark, which is 50 per cent owned by Macquarie Bank, has patented a product called the Equity Finance Mortgage (EFM) which involves an EFM lender putting up 20 per cent of the purchase price of residential property, cutting the up-front costs of buying a property for an individual borrower.

Rismark has a target to raise well in excess of $1 billion next one to two years from superannuation funds, fund managers and high net worth retail investors through the Rismark Active Property Trust to fund the products, Rismark managing director Christopher Joye said.

Rismark has secured a relief instrument to distribute the EFM through Adelaide Bank's traditional mortgage channels - its retail branches and accredited mortgage brokers.

Rismark is in discussions with other financial institutions to launch the scheme through their distribution channels.

The product is aimed at first time buyers struggling to enter the market as well as people wanting to purchase a more expensive property or those wanting to refinance an existing home loan.

Borrowers do not pay interest on the shared equity part of the loan or the principal monthly repayments but the lender of the EFM shares in a percentage (up to 40 per cent) of the future capital gain or capital loss (up to 20 per cent) of the property.

Adelaide Bank expects the product will make up 10 to 20 per cent of all new business through the bank in the next two years, Chief General Manager Banking Stephen Small said.

In a similar vein, St George Bank has joined forces with property developer Australand to offer joint ownership of residential property in two Sydney housing developments with separate title deeds for each share. The purchaser and equity partner (typically a relative or friend) will have 50-50 cooperation in the loan.

"It's a pilot project and it's a way of learning about pitfalls and legality that is involved to see if it will be a more generic product," St George chief manager specialised mortgage solutions Bill McCabe said.