In simple terms, most buyers will be relatively well in front with MA on Take Back (a term defined in the MA Purchase Contracts as your election (upon the happening of defined Take Back events). This contractual provision to exit in defined adverse personal circumstances is relatively better for home buyers, compared to most 5% deposit mortgages, if the property goes down in value over your occupancy contract period and prior to any exit.

In fact, you could be tens of thousands of dollars better off than with a mortgage and fire sale, if you lose your job or suffer ill health or get divorced and have to sell (for example). The higher your deposit, the worse it is for a home buyer, on fire sale in a down market.

Mortgage = loss of interest payments to date + Fire sale risk

MA = loss of payments to date net of return to the buyer of Accumulated Savings Fund + return of unspent Maintenance Budget… and NO fire sale risk!

It is only the majority of your contributed funds to date that an MA buyer loses (just like with a mortgage) if you elect to exit the contract but importantly, there is no additional fire sale loss (as there may be with a traditional mortgage) to an MA buyer with MA contracts.

Furthermore, if a buyer exercises their rights to exit by delivering a Notice of Take Back, they are returned at Take Back their monthly embedded savings plan and any entitlements arising from the unspent balance of the Maintenance Reserve Fund Part A for their property.

Why the Investor Bears The Capital Loss

Some residential properties that are suitable for Assquire® were purchased some time ago and have previously been occupied by the investor owner or rented out. Not all are new purchases, although that is possible too. Residential property landlords are being introduced to Assquire® by real estate agents that are accredited product agents for Assquire®. Investors may either already own a property suitable for Assquire® and MA, or may be acquiring an additional one to avail themselves of the higher, more predictable and accelerated net yields that Assquire® offers.

In this context, as a traditional landlord of a rental, if the property goes down in value, the investor has always accepted (and has accepted to date for their period of ownership of the property in question) all of the downside market value risk. Personal Assquire® contracts do not seek to change that. They offer a higher net yield for forgoing some of the uncertain upside capital growth and all of the downside market value risk.

MA buyers pay the accelerated returns to the Assquire® investor, as a negotiated reward to the Assquire investor/cost to the MA buyer for the opportunity to both enjoy the lifestyle benefits of home ownership before settlement, be free of any fire sale or downside risk, and to be entitled to any capital growth over an agreed capital growth factor for the duration of the MA occupancy period, based on a maximum occupancy period being undertaken (currently ten years).

So with Personal Assquire® contracts (PAC’s), there is no sharing of any capital losses on sale -although a formula for this might be introduced in future in any institutionally funded Assquire® model. That is not for now. Under PAC’s, landlords do not share downside risks with MA buyers, just as landlords don’t with tenants.

The Notice of Take Back

If an MA buyer is unable to settle because of defined Take Back events in the Purchase Contract, they follow the contract procedure of Take Back and complete a Notice of Take Back which is given via their accredited real estate agency or Haigslea Residential to the Assquire® investor in accordance with the contract. The MA buyer has 30 days to vacate the property and loses their deposit (usually 5%). If the Assquire® investor does not reassquire the property to another MA buyer or rent the property out,  it may be sold.

Rest assured that whatever happens with a Personal Assquire® contract, any additional loss on sale would only be borne by the Assquire® investor and not by the MA buyer.

Example: Traditional Mortgage Exit versus MA:

So let’s look at comparing a traditional mortgage fire sale with a simple exit using Mortgage Alternative. In a market price downturn, especially for vulnerable first home buyers, the example below highlights that the outcome can be dramatically better with Mortgage Alternative, than a mortgage fire sale. This is also true for parents or grandparents considering family pledges to help out their children or grandchildren.

Here is an example comparing MA buyer losses with those of a buyer taking a conventional mortgage – and assuming a current mortgagor (the traditional borrowing home buyer) requiring a traditional deposit of 10%:

Compare this with your standard mortgage where you (or a mortgage insurer) would be wholly liable for any loss on sale and a buyer would lose their full deposit of 10%!

With a traditional mortgage, a buyer would have to fund all of the selling agent’s fees and marketing costs.

Here is a further example:

In this scenario we compare the “fire sale” example from Scenario 2 under a standard mortgage arrangement. Not only does the buyer lose their original outlay of $41,523 (the 5% deposit plus other acquisition costs), the mortgage insurer (or the relative who provided the family pledge) may be obliged to cover to the bank the difference between the mortgage amount and sale price ($40,000) plus selling costs of $12,325. This combines for a total loss to the Purchaser and the mortgage insurer of $93,848, compared with just $25,000 loss to the buyer under Mortgage Alternative!

Of course, the positions can be dramatically worse with a traditional mortgage for a consumer, if they have a higher than 5% or 10% deposit. If there is no mortgage insurance, for example, because a family pledge assisted you to say a 20% deposit with no mortgage insurance, you (and your guarantor parents) would  suffer all of the above losses with a traditional mortgage!

Why take the risk, when there is Mortgage Alternative and you can have the home ownership lifestyle, without the large debt hanging around your neck, whilst your equity in the property is low?

This is one of the many reasons why Mortgage Alternative is much less risk for an MA buyer than a standard mortgage.

MA Buyer Accumulated Savings Fund & Return of Unspent Maintenance Budget:

If we then consider on Take Back or settlement the reconciliation of the Maintenance Reserve Fund Part A and the return of the MA buyer’s Accumulated Savings Fund that comes as part of the contracts an MA buyer signs, the example can be further represented as follows:

With Personal Assquire® investor contracts, the losses an MA buyer can suffer on exit via Take Back are:

• Deposit of (say) 5%
• Excess of MA monthly payments over rent
• Less: Refund of Accumulated Savings Fund to date (monthly savings component +interest – tax)
• Plus: Refund of unspent balance of Maintenance Reserve Fund Part A is forfeited
• Plus: Any arrears owing in your payments
• Plus: Any make good (fair wear and tear excepted)

In the example of a $500,000 home above:

• Deposit $25,000
• Excess payments: say $280 per month (or $10,000 over 3 years, say)
• Less Refund of Savings: $43 per month (-$1550)
• Loss of Refund of unspent balance of Maintenance Reserve Fund Part A: say $20 per month (say $720 over 3 years)
• Plus: Any arrears owing in your payments: say nil
• Plus: Any make good (fair wear and tear excepted): say nil

Total loss on exit: $34,170

The difference between the $25,000 deposit and the $34,170 is arguably not a loss on exit to the MA buyer; it is arguably the price paid over the period of occupancy (in the example 3 years) for the opportunity to enjoy the lifestyle benefits of home ownership, be insulated from fire sale risk, and for the MA buyer to secure for itself should it settle or Take Early any capital growth over a pre-agreed annual capital growth factor. That is the essence of MA.

MA truly is a superb product for home buyers, in mitigating downside risk, while their equity in the property is low…..and for little or no more than the cost of a 25 year Principal and Interest mortgage on a like for like basis.