Investment, Property Loans Unite
The Age
Monday February 10, 1997
PEOPLE who borrow to buy shares can now also incorporate the family home or investment properties into their loans through Leveraged Equities Pty Ltd, a subsidiary of the Westpac-owned stockbroker Ord Minnett.
The new service, called PowerHouse, allows people to consolidate their borrowings into one loan up to a maximum credit limit against real estate of $750,000. The minimum loan will be $100,000. The maximum credit limit against approved shares and managed investments is $5 million.
The real estate loans are only against residential property, and the manager, Peter Brooks, says there will be restrictions on property in towns with permanent populations of less than 10,000.
Finance will be available up to 80 per cent of the valuation. The other feature of the facility is that the property will be valued only every five years, and there will be no "establishment" fees on the loans, provided a person keeps the facility in place for five years or more.
The beauty of the five-year valuation is that it helps overcome the nightmare of people who borrow to buy shares - the margin call. Margin calls occur when share prices fall and so the percentage of borrowings increases beyond set limits. Investors are called by the margin lender to either put in more money or sell some stock.
The convenience of the product is that people will not need to have different lending packages for their shares and property with different organisations. The downside, for the time being, is that the interest rates are above variable home lending rates and as yet there is no fixed-interest alternative (a fixed five-year loan seems ideal).
The current rates are 9 per cent for loans between $100,000 and $250,000; 8.75 per cent for loans betwen $250,000 and $500,000 and 8.5 per cent for loans between $500,000 and $1 million.
One thing that should be noted for interested investors is that if you wish to use the equity from your home in this scheme, a separate account should be set up, because of the treatment of merged investment and housing loans by the tax office.
A separate account will overcome any confusion about which loan you really wish to pay off.
© 1997 The Age
