Equity mortgages, such as the proposed GEM Equity Loan, are a relatively new concept in Australia. However similar products, such as Shared Appreciation Mortgages, have been available overseas.

In Australia, the concept of ‘equity finance’ was discussed in a report by the Prime Minister’s Home Ownership Taskforce. The Taskforce’s report showed how first homebuyers could reduce their monthly mortgage repayments by agreeing to take on an equity partner.

Products linking repayment to property growth have also been offered in the United States and United Kingdom at different times since the 1970s. Generally, these products were considered expensive for consumers and were withdrawn.

Greenway has learnt from these international experiences and is committed to responsible lending. We are developing the Greenway Equity Mortgage with a range of features designed to protect consumers.

Greenway’s commitment to responsible lending
The GEM Equity Loan has consumer protections built in

The GEM Equity Loan features are fair for customers and for Greenway.

Lower percentage share	The share of any increase paid to Greenway is much fairer to the customer than products offered overseas.
Protection against a fall in property value	A ‘No Negative Equity Guarantee’ means that, provided borrowers comply with the Terms and Conditions of the loan, they will never be required to repay more than the fair market value of their property when the GEM Equity Loan is repaid.
All applicants are required to obtain advice	Prior to obtaining a GEM Equity Loan, all applicants must first obtain independent legal advice and complete a Financial Declaration with the assistance of a Financial Planner or Accountant confirming that they understand the features of the loan .
Educated and accredited distributors	GEM Equity Loans are only available from accredited financial planners and mortgage brokers.
Valuations are fair	•   Full valuations are conducted and you receive a copy of the valuation report •   Valuers are fully licensed and knowledgeable of your local area •   Valuation costs are minimised, while retaining accuracy  •   A comprehensive valuation system is in place to ensure that the valuation       process is robust •   A review process is available, giving you an opportunity to have your      valuation re-assessed.

The United States experience

During the 1970s in the U.S., fixed term mortgages offered borrowers a reduction in the interest rate if they agreed to share some of their equity with the provider. These products, which were developed at a time when interest rates were high, were withdrawn as rates fell.

Fannie Mae offered an equity option on its HomeKeeper reverse mortgage. This allowed borrowers to access a larger amount by agreeing to share up to 10% of the value of their home at sale. The HomeKeeper reverse mortgage is still offered, but the equity option was withdrawn in 2000 after criticism that costs were not adequately disclosed and that the product was too expensive. 

Other lenders offered a similar product in the early 2000s, however there was uncertainty about how loan proceeds affected a borrower’s tax liability.  This uncertainty was never overcome and the product was withdrawn in 2001. 

Equity mortgages are currently offered in the U.S. by universities, housing authorities and charitable organisations. For example, the University of Stanford offers loans to help staff afford properties close to the University.  

 

The United Kingdom experience

Products similar to equity mortgages have been offered by a number of U.K. mortgage providers including Mortgage Express, Bank of Scotland and Barclays. Bank of Scotland’s Shared Appreciation Mortgage (SAM) had no interest repayments, but involved sharing a percentage of any increase in the property value. The bank’s share was 3 times the initial loan to value percentage (LVR). For example, a loan of 20% of the value of their property, meant the repayment was equal to the original amount borrowed plus 60% of any increase in the value of the property.

Bank of Scotland used external funding to finance their mortgage lending. When the funder pulled out of the mortgage market, Bank of Scotland was left without a funding source.  

Since withdrawing its products, there has been criticism that the products were mis-sold and that their pricing was too costly for borrowers.

To find out more download our flyer, complete our online enquiry form or call Greenway on 136 GEM (that's 136 436) 8am to 6pm, Monday to Friday.