AU2005201844A1 - Shared appreciation progressive mortgage - Google Patents

Description

AUSTRALIA

Patents Act 1990 RESIDEX PTY LIMITED COMPLETE SPECIFICATION PATENT OF ADDITION Invention Title.

Shared Appreciation Progressive Mortgage The following statement is a full description of this invention including the best method of performing it known to us:- Title SShared Appreciation Progressive Mortgage Technical Field This invention concerns a Shared Appreciation Progressive Mortgage (SAM), that is an oO arrangement where a customer enters into an agreement with a lender to share the equity in a real estate property.

Background Art Currently investors are actively seeking exposure to the housing sector. At the same time housing for the first home buyer has become unaffordable as a result of recent high rates of capital growth. Governments are also potentially facing a political crisis with respect to ensuring the "Australian Dream" is viable. In addition, some existing home owners have borrowed heavily to allow investments in medium density housing projects in an attempt to generate wealth. An increase in interest rates of any significant proportion is likely to lead to unhealthy levels of default among first home buyers and medium density housing investors.

The earlier Australian Patent Application No 2004202479 assumes that the parties determine the interest that each has in the property being financed at the start of the transaction. This assumption while acceptable and capable of being implemented does not result in an optimal sharing of equity financing transaction for the borrower and makes the funding of the arrangement from the lenders point of view more difficult.

Disclosure of the Invention In a first aspect the invention is a method for financing real estate employing a Shared Appreciation Mortgage, comprising the steps of: A Customer seeking approval from a Lender for the purchase of a real estate property at a price.

After approval the Customer entering into a Main Contract for the purchase of the property.

3 tThe Customer obtaining a loan from the Lender, secured by a mortgage over the property, to purchase the property, the loan containing a first loan and a second loan, 0 where the first loan is a conventional principal and interest loan arrangement, and the second loan is an interest only loan where the interest rate is related to the rate of rental Sreturn from real estate properties of the value of the second loan (market rental rate).

00 The Customer and Lender entering a residential purchase contract containing an N obligation for the Lender to pay to the Customer an amount equal to the outstanding second loan immediately before the property is sold in order to purchase an interest in N the property proportional to the value of the outstanding second loan relative to the original purchase price of the property, so that the Lender and Customer jointly own the property at the time of sale.

The Customer having an obligation to repay the outstanding part of the first loan and the outstanding part of the second loan upon the sale of the property; wherein, the size of the second loan is periodically reviewed.

The second loan may be reviewed upwards or downwards at each review. In the event the customer finds the repayments too great, the second loan may be increased to allow part of the first loan to be reduced, and so reduce the overall payments.

On the other hand, should the customer wish to increase the repayments and acquire more equity in the property, then the second loan can be reduced.

In the event of the Customer defaulting on any loans provided by the Lender, then the Lender can exercise the residential purchase contract to acquire the interest in the property and force a sale of the property.

The interest rate on the second, interest only loan, may be reviewed periodically and may be calculated as follows: Monthly Interest Payment P /12) where: P is the Principal amount provided being the second loan; a is the Property Price Index, perhaps quoted by Residex, for the last day in the calendar quarter which has most recently passed for the suburb where the property is located; b is the Property Price Index, perhaps quoted by Residex, for the last day in the calendar quarter which was immediately before the day of purchase; and x is the market rental rate (expressed as a percentage per annum yield on the value of a property) for properties of like type and condition in the area where the property is located and, perhaps as quoted by Residex, less 2% (or such other percentage as determined appropriate from time to time) provided always x shall not be lessthan House price indices quoted by Residex may be calculated as described in pending Australian Patent Application No. 2003203821.

In the event that the Customer wishes to buy any interest that the Lender is entitled to purchase under the residential purchase contract, they are entitled to purchase it at a price equal to the lender's interest proportion of the original purchase price inflated by a factor related to the increase in property prices since the original purchase.

The Customer may purchase all or part of the interest, and may purchase several parts at different times.

The percentage interest in the property being acquired by the Customer may be calculated as follows: PIBP =FP/PP*a/b*100 where: PIBP is the Percentage Interest Being Purchased; FP is the Funds Provided by the Customer for the purchase; PP is the total purchase price that was paid by the Customer; a is the Property Price Index, perhaps quoted by Residex, for the last day in the calendar quarter which has most recently passed for the area where the property is located; and b is the Property Price Index, perhaps quoted by Residex, for the last day in the calendar quarter which was immediately before the day of purchase.

t The percentage interest the Lender holds at any time can be calculated as follows: CVI= (C2P/PP*100)-AIP where: CVI is the Lender's interest in the property expressed as a percentage; 00 PP is the total purchase price that was paid by the Customer; C2P is the contract price which was advanced under the second loan at the time Sof purchase; and AIP is the sum of any percentage interests acquired from the Lender at any time Ssince the purchase.

The amount at any time due from the Lender to the Customer under residential purchase contract can be calculated as follows: AmtDC2 CVI*PP where: AmtDC2 is the Amount Due under the second loan at any time to the Customer; CVI is the Lender's interest in the property expressed as a percentage; and PP is the total purchase price that was paid by the Customer.

The Lender may indicate areas where they will employ shared appreciation mortgages to finance a purchase of real estate properties, and the Customer may seek approval from the Lender for a property in one of the areas.

In a second aspect the invention is a Shared Appreciation Mortgage, comprising: A loan from a Lender to a Customer, secured by a mortgage, to purchase a property at a price, the loan containing a first loan and a second loan, where the first loan is a conventional principal and interest loan arrangement, and the second loan is a fixed interest rate loan where the interest rate is related to the rate of rental return from real estate properties of the value of the second loan (market rental rate).

A residential purchase contract containing an obligation for the Lender to pay to the Customer an amount equal to the outstanding second loan immediately before the property is sold in order to purchase an interest in the property proportional to the value of the outstanding second loan relative to the original purchase price of the property, so that the Lender and Customer jointly own the property at the time of sale.

An obligation on the Customer to repay the outstanding part of the first loan and the outstanding part of the second loan upon the sale of the property; wherein, the size of the second loan is periodically reviewed.

00 Advantages of the Shared Appreciation Mortgage are that it provides certainty with (-i respect to: The ultimate ownership outcome from the arrangement; (NI The cash obligations of each party; The cost of acquiring any interest in the property at any time in the future; The obligation to maintain and repair the property; The outcome for the parties having regard to personal exertion on the part of the occupier; and A structure which is easily understood and presents documentation that utilizes commonly used transaction documents such as a standard mortgage and contract for sale.

In a third aspect the invention is a real estate property purchased by a Customer using a Shared Appreciation Mortgage, and subject to the resulting potential changes in ownership.

In a fourth aspect the invention is a financial security by which investors provide funds to be lent as second loans for Shared Appreciation Mortgages, and receive a return at the time of sale of mortgaged properties related to the increase in price of the properties from the time of purchase to the time of sale.

The financial security may comprise a home savings type bank account where interest is linked to rental rates in a city or region of a city and the redemption amount is linked to the house price index for a city or region of a city.

The financial security may comprise a Trust savings bond to which investors make regular contributions and are guaranteed that at termination the maturity value is sufficient to purchase a pre-agreed amount of a home in a city or region of a city.

The financial security may comprise an equity instrument issued by a financier where an investor has the right to pay dividends by issuing additional equity instruments and O the dividend is linked to rental returns on residential property. The redemption value of the equity investment may be linked to a house price growth index and the redemption price paid is determined using a linked house price index.

00 SAdvantages for the Customer of Shared Appreciation Mortgages: The Customer may be required to provide only a small amount of personal funds via a N deposit. The deposit might be sufficient only to provide for purchase costs.

The Customer may be able to access property that would not otherwise have been available or easily affordable. For the first home buyer this in itself is important. The ability to acquire property in better areas can be even more valuable; since owning one hundred percent of a property in an area where future growth is limited might give less capital growth than owning smaller equity in a property in a better location.

Risk levels for the customer may be lower, since if property values fall then the Lender has no rights to recover the market loss from the Customer.

Obligations and property interests may be changed as income situation allows. The primary loan presents a housing savings plan that keeps pace with the growth rate in housing. In fact the process allows the Customer to leverage the savings process.

The Customer may enjoy all the benefits of home ownership that are available under a traditional home loan arrangement. This includes security of tenure, ability to sell whenever required and an interest in a traditionally attractive asset class.

The arrangement may provide the Customer with a lower interest rate as compensation for meeting maintenance and other property costs. In fact the Lender's return may be up to about 2% less than the market rental return on that portion of the property that the lender has an interest in.

The Customer may buy part or all of the interest in the property that is due to the Lender at any time for a price that is the original purchase price inflated by the index growth rate for the suburb. This effectively will allow the customer to get the full benefit of their diligence in maintaining and improving the property.

Finally, where the Customer is investing in property, the arrangement may provide an enhanced taxation and investment position as they are able to access a larger number of investment properties and generate much higher taxation benefits.

00 Advantages for the Lender and Investor of Shared Appreciation Mortgages: Properties in this arrangement may be chosen from predefined good capital growth suburbs of a city, and as a result are likely to return better than average capital growth.

Where the customer buys back the Lender's interest in the property, the Lender still receives a price for their interest that is inflated by factors related to real estate prices, and should do better than the average increase provided the location of the property is in a higher than average area.

Brief Description of the Drawings An example of the invention will now be described with reference to the accompanying drawings, in which: Fig. 1, is a flow chart for entering into a Shared Appreciation Mortgage (SAM), and Fig. 2 is a flow chart for a progressive arrangement.

Best Modes of the Invention The process for entering into a Shared Appreciation Mortgage (SAM) is outlined below with reference to Fig 1: A customer interested in entering into an arrangement with Lender selects a property in an area where the Lender has indicated it is prepared to fund properties The Customer submits a normal loan application 20 for funds where the agent of the Lender has undertaken calculations to determine the appropriate price for the property and mix of the Loan into first and second parts, Parts A and B.

After approval the Customer enters into a Main Contract 30 to purchase the property at the price approved by the Lender. The Customer provides a deposit and borrows 40 the remainder from the Lender by means of the two Loan Parts A, 50 and B, At settlement the parties execute the following documents: 00 A Second Contract 70 for a sale of an interest in the property (Contract 2) to the 0 Lender. The sale price under Contract 2 is equal to the interest in the property which t the Lender has agreed to purchase, and is equal to the funding provided by the Lender pending its purchase via a fixed interest rate loan being Loan Part B.

A Loan agreement comprising of Loan Part A and Loan Part B A standard home loan mortgage 80 over the property in support of the Loan agreement.

Following settlement, the Customer pays a single home loan repayment that is the sum of the interest and principal for Loan Part A and the interest component for Loan Part

B.

During the term of the arrangement a number of variations are possible: If during the term of the arrangement the Customer has surplus funds and wanted to redeem part of their mortgages then a decision could be made to redeem a part of either Loan Part A or Loan Part B. This decision requires the Customer to make judgments about likely future rates of capital growth in the housing market, potential for market rent increases and or interest rate changes. Modelling software will be provided as part of the arrangement to remove some of the subjectivity of this decision making process.

The Customer could also be provided with consulting services if required. A reduction in Loan Part A is no different to that which would occur under a traditional home loan.

Loan Part B requires that there is a full redemption and a redraw to the new amount of funding required once the part redemption is processed. Additionally, this redemption triggers Contract 2 and as a consequence the parties have a need to reorganize the contract terms. Effectively, a part redemption of Loan Part B is a purchase of some interest in the property back from the Lender. The Purchase price paid is either the redemption amount under the loan indexed from the date of Contract 2 to the date of redemption where the index is the appropriate Residex index or a price set by independent valuers but shall not be less than the amount due under Loan Part B.

The Customer at some time may decide to dispose of the property and identifies a third party who will purchase a 100% interest in the property for market value. The disposal is a trigger under Contract 2 that causes the Customer and the Lender to exercise their 00 rights. As a consequence, completion of Contract 2 takes place immediately before the purchase by the third party. The completion of Contract 2 requires the Lender to pay to the Customer an amount equal to the Loan Part B 90 and these funds are used to repay Loan Part B, 100. We now have a situation where the Customer and the Lender jointly own the property. Both parties enter into the contract of sale to the third party 110.

The end result is that the Customer has received settlement funds equal to its interest in the property which was funded by a traditional home loan mechanisms and the Lender has received sale proceeds equal to its interest in the property it purchased via Contract 2. The Lender has benefited from the capital gain from the sale of the property with respect to its interest, and during the term of the SAM has received an interest rate that was tied to property rentals. Effectively both parties shared the benefits of property ownership.

The key documents in the arrangement are: The loan document This is a standard loan document but contains two loan segments. The Loan Part A segment is a principal and interest loan arrangement with interest rates tied to the 180 day bank bill rate and Loan Part B is a fixed interest rate loan. The interest rate on this loan is reviewed every three years and is calculated as follows: Monthly Interest Payment P /12) where P is the Principal amount provided being Loan Part B; a is the House Price Index quoted by Residex for the last day in the calendar quarter which has most recently passed for the suburb where the property is located; b is the House Price Index quoted by Residex for the last day in the calendar quarter which was immediately before the day on which the original (where there are a series of Contracts 2 as a consequence of a series of part redemptions of Loan Part B) Contract 2 was entered into; x is the market rental rate (expressed as a percentage per annum yield on the O value of a property) for properties of like type and condition in the Suburb where the property is located and as quoted by Residex less 2% (or such other percentage as determined appropriate from time to time) provided always x shall not be less than 00 Contract 2 This is a standard residential purchase contract but contains some important conditions.

N The Lender enters into the agreement on the basis that it will: While ever this contract is enforceable provide to the Customer finance. Such finance will include a loan (Loan Part It being agreed that in the event that the Customer does not take up Loan Part B in amount equal to the amount which is due under Contract 2 then the Lender would exercise its rights under the contract and complete and having done so would own a portion of the property and would have a right to charge the Customer a market rental on its interest in the property and be entitled to exercise a Power of Attorney right over the Customer's interest in the property and offer 100% of the property for sale.

Pay to the Customer an amount equal to the Loan Part B on the happening of any one of the following events.

The Customer selling the property The Customer defaulting on any loans provided by the Lender (in this case the Lender can cause the property to be sold).

The Customer seeking to buy back any interest which is being disposed of under the Contract.

The Lender agrees to allow the Customer to acquire any interest or part interest it holds in the property via its rights under Contract 2 The percentage interest in the property being acquired can be calculated as follows: PIBP =FP/PP*a/b*100 where: Sa/b is less than 1 then a/b shall be deemed to be 1; and PIBP is the Percentage Interest Being Purchased; FP is the Funds Provided by the Customer for the purchase; PP is the total purchase price that was paid by the Customer under the Main 00 Contract; a is the House Price Index quoted by Residex for the last day in the calendar quarter which has most recently passed for the Suburb where the property is located; b is the House Price Index quoted by Residex for the last day in the calendar quarter which was immediately before the day on which the original (where there are a series of Contracts 2 as a consequence of a series of part redemptions of Loan Part B) Contract 2 was entered into.

The percentage interest the Lender holds at any time can be calculated as follows: CVI= (C2P/PP* 100)-AIP where: CVI is the Lender's interest in the property expressed as a percentage; PP is the total purchase price that was paid by the Customer under the Main Contract; C2P is the contract price which was advanced under Loan Part B when the first Contract 2 was entered into; and AIP is the sum of any percentage interests acquired from the Lender at any time since the first Contract was entered into.

The amount at any time due from the Lender to the Customer under Contract 2 can be calculated as follows: AmtDC2 CVI*PP where; AmtDC2 is the Amount Due under Contract 2 at any time to the Customer; CVI is the Lender's interest in the property expressed as a percentage; PP is the total purchase price that was paid by the Customer under the Main Contract.

Example Assume a property was purchased on 1st May 1998 for $250,000 and the Customer had a household income of $60,000. The terms of the Lender specify that loans can only be made in situations where only 27% of gross income can be used to make repayments. Therefore, Customer has $1,350 per month that can be applied to loan arrangements. On these conditions the Customer would borrow $177,600 by way of a traditional home loan at 6.5% with a monthly cost of $1,200 and acquire an interest in the property of 71%. The Lender would acquire the balance being 29% for a cost of $72,400 and charge interest on this component at the rate of that is $150, per month.

On 1st May 2000 the Customer wins $50,000 in the lottery and wants to acquire as much of the property as possible. He notifies the Lender and hands over the $50,000.

Property prices since 1998 have increased by 32.5%. The Residex Index value at the time of Contract 2 being entered into was 1.893 and on 1st May 2000 is 2.5082.

Contract 2 is amended so that the Lender has a future obligation to pay to the Customer $34,650 to acquire an interest in the property of 13.86 This was calculated as follows: PIBP FP/PP*a/b*100 50000/ 250000 1.893/2.5082 100 15.094% CVI (C2P/PP*100)-AIP (72400/250000*100)-15.094% 13.86% AmtDC2

CVI*PP

13.86%*$250,000 $34,650 The Loan Part B will now be altered to $34,650 and Monthly Interest Payments will be calculated as follows: Pamet p*a/lOx/1 2 Monthly Interest Payments P *a/b*x/12 $34650*2.5082/1.893*2.5%/12 $95.64 In early 2003 the Customer decides the property is no longer suitable and on 1st May 2003 sells the property to a third party via auction for $375,000 plus costs.

00 At the settlement the Third Party pays to the two owners of the property being the Customer and Lender a total of $375,000. The Customer receives $323,025 and the Lender receives $51,975, that is payments in proportion to their interest in the property (Ni at the time of sale.

In addition, immediately before the settlement, the Lender pays to the Customer $34,650 for its 13.86% interest in the property in terms of Contract 2.

The Customer clears Loan Part A, which has now been reduced to $160,838, by paying that sum to the Lender. The Customer also clears Loan Part B by paying $34,650 back to the Lender.

After settlement the net position of the Customer is a profit of $127,537 after loan repayments and an investment of $50,000 in the property in May 2000. The Lender has received interest during the period of both Loan Parts A and B, and receives a capital sum in proportion to its interest in the property.

The SAM structure has the potential to allow people who would not otherwise be able to purchase a property to do so. The investor utilising the arrangement reduces their tax burdens and accesses lower levels of risk with larger numbers of investments and investment into better quality areas. Additionally, the structure will present the Lender with the opportunity to issues to those who are not interested in leveraging their position with the opportunity to purchase liquid housing securities that perform in line with the housing market.

Investors may lend money to the Lender to finance the first or second loans 200. The investors may purchase securities linked to a pool of property, and may receive a return based on the interest paid on the interest repayments and the capital growth realised at the time of sale 210.

The modification or improvement does not alter the methods and process described N above but provides a better total outcome for sharing of equity in the property by O identifying the amount of sharing of equity at various dates through financing.

In essence it is clear that if a financier were to purchases an interest in a property on OO day one sufficient to make the monthly repayment obligations affordable in all circumstances, including an allowance for interest rate movements, over the total financing term then most often in the longer term the borrower would give up a larger 010 share or interest in the future capital profits of the property being financed than was necessary. That is, the financier would have to assume that there would not be increases in income of the borrower as these increases may not happen and make allowance for significant increases in interest rates. Hence at the start of the loan when the determination of the sharing was made there would be a larger financier share in the future capital profits from the property than may ultimately turn out to be necessary to reduce the cash flow repayment obligations of the borrower.

The solution is to progressively identify, yearly or an agreed frequency, the sharing in capital profits in the property. In essence the borrower and financier consider the capacity of the borrower to make loan repayment for an agreed period and the borrower sells an interest in the property so that with the proceeds of sale and the reduced cash flow obligations coming from the sharing of equity the borrower is placed in an acceptable cash flow obligation position for that agreed period only. This typically will result in annual sales of equity in a property to a financier and the sale amount maximum being set at transaction commencement hence allowing the initial sharing of equity to be identified. The annual sharing of equity generally would range between 2% and 5% and decrease over time as the borrower is given the added advantage of being able to access growth in the property as sales of interest in the property are effected to reduce repayment obligations. The process in most situations will result in the borrower having to share smaller amounts of profit in the property with the financier.

Referring now to Fig. 2, if the loan repayments become too high 300, then the borrower sells a further share of the equity they own in the property 310. This has the effect of increasing the second loan 320 and reducing the first loan 330 by a corresponding amount. The overall repayments become manageable again 340.

A difficulty for the financier with the single investment at transaction commencement is the need to access large amounts of funds in the market. These funds have to be sourced from parties who are interested in taking a return based on rent and house price growth. The process which allows the borrower to sell equity in the property only as necessary to ensure the cash flow obligations are acceptable also removes much of the financiers upfront funding problems. The financier would only have to find say 2% to 00 5% of the values of properties being financed in any one year instead of say 35% of the Svalue of properties being financed at transaction commencement.

This progressive equity purchase allows the financier to develop a series of different unique investment products not previously available in the market. These products have progressive or constant cash contributions which will support the progressive nature of the buying of equity in the home loan arrangement.

A home savings type bank account where interest is linked to rental rates in a city or region of a city and the redemption amount is linked to the house price index for a city or region of a city.

A Trust savings bond where a Unit Trust or other special purpose legal entity (SPLE) issues a home savings plan where weekly or monthly an investor has deducted from salary an amount which is invested in the SPLE instrument and the SPLE guarantees that at termination in consideration of the agreed regular payments being made the maturity value of the SPLE investor instrument will be sufficient to purchase a preagreed amount of a home in a city or region of a city.

An equity instrument (say a non redeemable convertible preference share) issued by the financier where the investor has the right to pay dividends by issuing additional equity instruments and the dividend is linked to rental returns on residential property. The redemption value of the equity investment being linked to a house price growth index and the redemption price being paid at the election of the financier by way of cash or conversion into shares in the financier where the number of shares issued is determined having regard to the then market value of the financiers shares and the redemption value which has been assessed using the linked house price index.

The addition of this progressive purchase of equity in a financed property by a financier and the financier funding by the specially designed instruments linked to the non

I

tt 17 subjective and non manipulative house price indices provides a unique product, product Sgroup and process.

It will be appreciated by persons skilled in the art that numerous variations and/or modifications may be made to the invention as shown in the specific embodiments without departing from the spirit or scope of the invention as broadly described. The 00 present embodiments are, therefore, to be considered in all respects as illustrative and 0 not restrictive.

In ot' 0"-

Claims (28)

1. A method for financing real estate employing a shared appreciation mortgage, O comprising the steps of: a customer seeking approval from a lender for the purchase of a real estate property at a pnrice; 00 after approval the customer entering into a main contract for the purchase of the Sproperty; I the customer obtaining a loan from the lender, secured by a mortgage over the property, to purchase the property, the loan containing a first loan and a second loan, where the first loan is a conventional principal and interest loan arrangement, and the second loan is an interest only loan where the interest rate is related to the rate of rental return from real estate properties of the value of the second loan; the customer and lender entering a residential purchase contract containing an obligation for the lender to pay to the customer an amount equal to the outstanding second loan immediately before the property is sold in order to purchase an interest in the property proportional to the value of the outstanding second loan relative to the original purchase price of the property, so that the lender and customer jointly own the property at the time of sale; and, the customer having an obligation to repay the outstanding part of the first loan and the outstanding part of the second loan upon the sale of the property; wherein, the size of the second loan is periodically reviewed.

2. A method according to claim 1, wherein the second loan is reviewed upwards or downwards at each review.

3. A method according to claim 2, wherein in the event the customer wishes to reduce the repayments, the second loan is increased to allow part of the first loan to be reduced.

4. A method according to claim 2, wherein in the event that the customer wishes to increase the repayments and acquire more equity in the property, the second loan is reduced.

5. A method according to any preceding claim, comprising the further step, in the event of the customer defaulting on any loans provided by the lender, the lender exercising the residential purchase contract to acquire the interest in the property and force a sale of the property.

6. A method according to any preceding claim wherein the interest rate on the second, interest only loan is reviewed periodically. 00

7. A method according to claim 6, wherein the interest rate on the second, interest Conly loan is calculated as follows: monthly interest payment P /12) where: P is the principal amount provided being the second loan; a is the property price index for the last day in the calendar quarter which has most recently passed for the area where the property is located; b is the property price index for the last day in the calendar quarter which was immediately before the day of purchase; and x is the market rental rate (expressed as a percentage per annum yield on the value of a property) for properties of like type and condition in the area where the property is located and less 2% (or such other percentage as determined appropriate from time to time) provided always x shall not be less than

8. A method according to any preceding claim, wherein, in the event that the customer wishes to buy any interest that the lender is entitled to purchase under the residential purchase contract, they are entitled to purchase it at a price equal to the lender's original purchase price inflated by a factor related to the increase in property prices since the original purchase.

9. A method according to claim 8 wherein the customer purchases all or part of the interest, and the percentage interest in the property being acquired by the customer is calculated as follows: PIBP =FP/PP*a/b*100 where: PIBP is the percentage interest being purchased; FP is the funds provided by the customer for the purchase; PP is the total purchase price that was paid by the customer; U a is the property price index for the last day in the calendar quarter which has most recently passed for the area where the property is located; and b is the property price index for the last day in the calendar quarter which was 0 immediately before the day of purchase.

A method according to any preceding claim, wherein the percentage interest the 00 lender holds at any time is calculated as follows: CVI= (C2P/PP*100)-AIP where: N CVI is the lender's interest in the property expressed as a percentage; PP is the total purchase price that was paid by the customer; C2P is the contract price which was advanced under the second loan at the time of purchase; and AIP is the sum of any percentage interests acquired from the lender at any time since the purchase.

11. A method according to any preceding claim, wherein the amount at any time due from the lender to the customer under residential purchase contract can be calculated as follows: AmtDC2 CVI"PP where: AmtDC2 is the amount due under residential purchase contract at any time to the customer; CVI is the lender's interest in the property expressed as a percentage; and PP is the total purchase price that was paid by the customer.

12. A method according to claim 7 or 9 wherein the house price indices are those quoted by Residex.

13. A method according to any preceding claim, comprising the further step of the lender indicating areas where they will employ shared appreciation mortgages to finance a purchase of real estate properties, and the customer seeking approval for the purchase of the property in one of the areas.

14. A method according to any preceding claim, where the interest rate of the second loan is related to the rate of rental return from real estate properties that is proportional to the value of the second loan.

15. A method according to any preceding claim substantially as hereinbefore described with reference to the accompanying drawing.

16. A shared appreciation mortgage, comprising: a loan from a lender to a customer, secured by a mortgage, to purchase a property at a price, the loan containing a first loan and a second loan, where the first loan is a conventional principal and interest loan arrangement, and the second loan is a fixed interest rate loan where the interest rate is related to the rate of rental return from real estate properties of the value of the second loan; a residential purchase contract containing an obligation for the lender to pay to the customer an amount equal to the outstanding second loan immediately before the property is sold in order to purchase an interest in the property proportional to the value of the outstanding second loan relative to the purchase price of the property, so that the lender and customer jointly own the property at the time of sale; an obligation on the customer to repay the outstanding part of the first loan and the outstanding part of the second loan upon the sale of the property; wherein, the size of the second loan is periodically reviewed.

17. A shared appreciation mortgage according to claim 16, wherein the second loan is reviewed upwards or downwards at each review.

18. A shared appreciation mortgage according to claim 17, wherein in the event the customer wishes to reduce the repayments the second loan is increased to allow part of the first loan to be reduced.

19. A shared appreciation mortgage according to claim 17, wherein in the event the customer wishes to increase the repayments and acquire more equity in the property the second loan is reduced.

A shared appreciation mortgage according to any one of claims 16 to 19, wherein the interest rate on the second, interest only loan is reviewed periodically.

21. A shared appreciation mortgage according to claim 20, wherein the interest rate on the second, interest only loan is calculated as follows: monthly interest payment P /12) where: P is the principal amount provided being the second loan; 00 a is the property price index for the last day in the calendar quarter which has most recently passed for the area where the property is located; b is the property price index for the last day in the calendar quarter which was immediately before the day of purchase; and Ni, x is the market rental rate (expressed as a percentage per annum yield on the value of a property) for properties of like type and condition in the area where the property is located and less 2% (or such other percentage as determined appropriate from time to time) provided always x shall not be less than

22. A real estate property purchased by a customer using a shared appreciation mortgage according to claim 16, and subject to the resulting potential changes in ownership.

23. A financial security by which investors provide funds to be lent as second loans for shared appreciation mortgages according to claim 16, and receive a return at the time of sale of mortgaged properties related to the increase in price of the properties from the time of purchase to the time of sale.

24. A financial security according to claim 23, comprising a home savings type bank account where interest is linked to rental rates in a city or region of a city and the redemption amount is linked to the house price index for a city or region of a city.

A financial security according to claim 23, comprising a Trust savings bond to which investors make regular contributions and are guaranteed that at termination the maturity value is sufficient to purchase a pre-agreed amount of a home in a city or region of a city.

26. A financial security according to claim 23, comprising an equity instrument issued by a financier where an investor has the right to pay dividends by issuing additional equity instruments and the dividend is linked to rental returns on residential Sproperty.

27. A financial security according to claim 24, where the redemption value of the equity investment is linked to a house price growth index and the redemption price paid is determined using a linked house price index. 00

28. A shared appreciated mortgage as herein before described with reference to the t accompanying drawing. Dated this second day of May 2005 Residex Pty Limited Patent Attorneys for the Applicant: F B RICE CO