Equity finance mortgages, just released from the Adelaide Bank could make property ownership easier, but analysts warn it could boost house prices because it fuels demand without addressing supply.
The announcement came just a day after economic analysis released by the Federal Labor Party claimed housing affordability across the nation was in crisis.
The loan product 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.
The loan effectively allows people to buy a house up to 25 per cent more expensive than is possible under a traditional home loan.
Adelaide Bank chief general manager, banking, Stephen Small said the bank, and its partner Rismark International had been developing the product for about four years.
"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, 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.
CommSec senior financial analyst Carlos Castillo said that if such loans became widespread, the effect would likely be an increase in house prices.
"If it does become more widespread it does mean there is more demand for properties and people can afford to pay more than in the past," Mr Castillo said.
"I don't think it's outside of the realms of possibility that rather than increasing affordability and keeping house prices where they are, that house prices might just ratchet up by the amount of the benefit that comes from this type of product."
Mr Castillo said this would only happen if other banks took up the product and it became widespread.
"History suggests that if this product does find a market out there then it wouldn't take too long for other players to . . . replicate the product."
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."
Herald Sun
