Industry stalwart and Deloitte partner James Hickey has earmarked shared equity mortgages as an area with strong potential for Australian lenders.
Speaking at the Actuaries Institute Financial Services Forum in Sydney this week, Mr Hickey said that shared equity home loans – where the borrower shares part of the property’s capital growth with the lender in return for smaller repayments – should be explored by Australian mortgage providers.
“There is a strong potential to explore whether for certain consumers out there it is a viable alternative,” he said.
“There are opportunities across all segments of the market.”
Mr Hickey said the mortgages would see demand from retirees, families looking to manage cash flow and particularly first home buyers as they continue to struggle to enter the market.
“If first home buyers can only afford 80 per cent of that normal serviceability amount, the lender may allow that, provided they give away some of the capital growth,” he said.
The shared equity space was pioneered by a few lenders before the GFC, but failed to take off after the financial crises hit and funding fell through.
Most notable of them was Rismark, which launched its product through Adelaide Bank.
“It was a supply side issue, rather than an issue of borrower demand,” Mr Hickey said.
“Borrower demand was actually quite strong; it’s just that the funding floor fell out,” he said, adding that funders will need to become comfortable if Australians are to access a shared equity option.
“As funding has returned, it has returned for standard mortgage products,” Mr Hickey said.
“It will take a little while longer before investors have the appetite for more exotic types of risk exposure such as shared equity mortgages.”
Lenders will also need to consider the additional risk of market exposure.
“If you’re in the risk team of a bank, that means you suddenly have to start to get your head around the fact that you’re not just exposed to interest rate and serviceability repayment risk, you are also exposed to property capital growth risk,” Mr Hickey said.
“That is an area for further consideration in Australia.”