The Socioeconomic Impact of Shared Appreciation Mortgages on Borrowers: Empirical Evidence from South Australia

25 Pages Posted: 4 Nov 2013 Last revised: 13 May 2014

See all articles by George Mihaylov

George Mihaylov

University of Adelaide

Ralf Zurbruegg

University of Adelaide; Financial Research Network (FIRN)

Date Written: June 6, 2013

Abstract

Shared appreciation mortgages (SAMs) realign traditional incentives in the lender-borrower relationship by substituting future capital gains for interest income. This makes them a potentially innovative solution to affordability and other homeownership crises. Taxation and regulatory barriers have impeded SAM development limiting empirical studies of their impact on households. This has not been the case in South Australia where State government implementation of SAMs has made available a unique and detailed dataset of low-income SAM-financed households. Examining this population, it is found that SAM borrowers benefit from increased budgetary expenditure on discretionary items following take-up, while simultaneously saving on some non-discretionary items relative to a control sample. Furthermore, SAM homeownership also seems associated with increased borrower levels of neighbourhood satisfaction and community involvement. Overall, these results indicate that SAM-financed homeownership leads to changes in borrower behaviour and deserves further consideration by the housing industry and research community.

Keywords: Shared appreciation mortgage, Participating mortgages, Homeownership, Financial crisis, Moral hazard

JEL Classification: H31, H76, R20

Suggested Citation

Mihaylov, George and Zurbruegg, Ralf, The Socioeconomic Impact of Shared Appreciation Mortgages on Borrowers: Empirical Evidence from South Australia (June 6, 2013). Urban Studies 51(2) February 2014, Available at SSRN: https://ssrn.com/abstract=2349248

George Mihaylov

University of Adelaide ( email )

233 North Terrace
Department of Finance
Adelaide, SA 5005
Australia
+61 8 8313 2056 (Phone)

HOME PAGE: http://www.adelaide.edu.au/directory/george.mihaylov

Ralf Zurbruegg (Contact Author)

University of Adelaide ( email )

233 North Terrace
Department of Finance
Adelaide SA 5005
Australia
+61 8 8303 5535 (Phone)
+61 8 8303 4368 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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