This deserves a detailed answer. There are many aspects to consider, so home or apartment buyers can consider carefully the features outlined below. I’m sure that much will be written on this in the press and on line in weeks and months to come, as news of this innovative financing system spreads. so it is best to get the facts out there for all.
Using a $500k house as an example with 5% deposit, a buyer with a traditional mortgage would have $475k of debt hanging over their heads plus around $15k of mortgage insurance – total $490k of debt, compared to no debt with Mortgage Alternative (there is no loan). A buyer purchases from our Fund (or other personal Assquire investor – it could be their current landlord) on a deferred settlement basis over ten years, and (if not already a tenant) moves in immediately. Their mortgage opportunity is at the end of the ten years.
In addition,there is the unique ability with MA to walk away at any time during the ten years prior to their settlement, with potentially reduced risk of a mortgagee or “fire” sale (if you’d had a mortgage), or a lower loss in the event of a fire sale, if the buyer loses their job unexpectedly in future or unexpectedly split up with their partner or suffered serious health problems…..or if the property’s market value falls in future. The Fund (or other Assquire investor) remains on title until the buyer settles with a mortgage. So in the event of personal mishap, the buyer simply exercises their contractual right with MA’s Fund (or other Assquire investor) to vacate the property and need not be involved with the property from that time, once they have met their contractual obligations under the MA Fund’s (or other Assquire investor) contract (the Fund/investor is on title, so it deals with the property from there, and may offer it to another new MA customer (just like a tenancy in a shopping centre churns) or alternately sell the property).
A buyer simply cannot walk away with a mortgage, as the buyer must repay the 490k plus pay the selling costs (advertising and real estate agents commission of about 13k plus) leaving the mortgaged buyer potentially with a loss of all or part of their 5% deposit, plus any loss on the property’s market value – IF they’d taken a mortgage.
In addition, mortgagee in possession sales of homes can be 90% or 85% of the property’s market value – sometimes even lower in a hurried sale (whereas the Fund/ Assquire investors have other options and often the benefits of something called portfolio risk management, which consumers with mortgages don’t usually enjoy).
Then there is the potential for bank default interest on the mortgage or continued mortgage repayments if you can’t sell quickly and you have a traditional mortgage. With MA, there should be no default (and so no default interest owing) if you exercise your consumer Take Back rights under your contract to vacate the property at any time and not settle with the Fund/investor. However, if you do not settle as intended, you will have paid the client establishment fee out of your 5% deposit, as this is the investor’s protection that you truly do intend to buy the home, not just “rent it”. This is a home purchasing business model, not a rental model. If you settle, the Assquire investor/Fund replenishes/refunds you the client establishment fee in full. That’s fair.
Recent bank surveys show many Australians are concerned currently about the risks of potential loss of employment, especially with government downsizing and the mining support services sector experiencing difficulties. These events can be very unsettling when you have a big mortgage. Unemployment may not occur, but it is risky to take a mortgage with only a 5% deposit, if you have ANY concern about you or your partner’s future employment at any time over the next five years. And no one knows where property prices will go in future, nor do they have a written job guarantee. These risks (to greater or lesser degrees) have always been there with mortgages and are part of a mortgage contract and home purchase contract with little option. Until now.
Mortgage Alternative is simply another purchase option (purchase, not rent) to a traditional mortgage with far easier exit and more control and downside risk protection for the buyer, and each person needs to consider what is best for them in their own personal circumstances and having regard to their own view on future property prices and their appetite for risk.
MA also mandates insurance benefits for the Fund/ Assquire investor that are of indirect benefit to our MA customers, some of which are not ordinarily available with all mortgages.
Based on enquiries to date of the insurance market, we expect up to two years of a buyers monthly MA payments to be insured, subject to T’s and C’s, in the event of certain insurable events like certain causes (but not all) of loss of employment.
In addition, the return of all or part of the buyer’s savings component of their monthly payments on exit (again subject to T’s and C’s) compares favourably to a mortgage, where on exit, a buyer does not get ANY of their interest payments returned by the bank. You get zero interest payments returned on exit from a mortgage.
There are many other benefits with this innovative patented system of home financing. It is not just a case of having 5% savings – genuine or otherwise.
Some property developers we have introduced MA to have said to us: “It is all about buyers with lower deposits saving on expensive lender’s mortgage insurance”. Mortgage brokers have called MA a “game changer”. Institutions we have met have described MA as “compelling”. Lawyers have congratulated us on a great innovation. Real estate agents have said to us “This will go really well”.
In reality, for renters, it is also about not giving all of your future capital growth to your landlord, and getting a foot on the property ladder and locking the property price today.
To us, the flexibility and ease of exit in adverse unforeseen personal circumstances is the biggest selling feature and gives buyers more certainty and more peace of mind – with added downside risk protection if market prices fall – those features are simply not offered by a mortgage or any rent to buy. Banks are not in the business of taking asset risk. They are there to protect the savings of depositors. Mortgage Alternative is to be equity funded by private property investors that see Assquire as a means to more than double their net rental yield each month (on average over ten years) and/or Institutional investors who understand the risks of investment in residential property, and who appreciate the particular additional embedded risk mitigants that this patented system offers to both our Fund/ investors and MA buyers alike. They appreciate the annuity revenue streams that arise from monthly occupancy fees derived in the REIT market, the corporate structuring and design of which has had an influence on the design of MA – for the benefit now of home purchasers, and to reduce the risks of people still renting in retirement in 20 or 30 years time.
As far as comparing MA to a mortgage or renting, each buyer or renter needs to consider all of the features and benefits and all of the options as in some cases a mortgage may be preferred and in others, Mortgage Alternative or even continuing to rent may indeed be the best option.
But first, they must see if their personal circumstances qualify for MA by lodging an application/registration form at www.mortgagestarter.com.au
There is no obligation to take MA. This early phase will begin with individual property investors (Assquire investors) to allow us to confirm the levels of consumer demand, and to confirm levels of overall expected consumer demand – to allow institutional funders to appropriately queue the early capital needs, for an efficient and sustainable business.
For the early registrants who qualify, they will enjoy all of the specific features and benefits of MA, and should first obtain independent financial advice from an accountant or financial planner or other adviser on whether Mortgage Alternative is suitable for them, or whether a traditional mortgage or renting is better for them in their own personal circumstances.
The HFGA team hope this further clarifies the comparison to a mortgage with a 5% deposit.
To conclude, an early registration allows priority consideration of your application and as this product is expected to be very popular (albeit not the best option for all consumers), it is considered best for those who might be interested to register early and complete the application without delay.