Positive Gearing: a different kind, no margin calls

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Positive Gearing: a different kind, with no margin calls

Borrowing to invest is a popular strategy for building wealth in Australia. Record low interest rates and legislative changes making superannuation less attractive have increased enthusiasm for borrowing to invest, but margin lending and the potential for margin calls are still a scary prospect for many. For those who can’t afford or don’t wish to buy property, a new way of gearing reduces the stress of borrowing to invest.

 

Note: There are risks associated with borrowing to invest. Some of these include, but are not limited to, rising interest rates, changes in taxation law and movements in the prices of your investments which may have an effect on your financial position. It’s recommended you speak to a financial adviser before deciding to invest. Gearing will increase both returns and losses compared with an ungeared equivalent investment.

 

(Click on the cover page image for the full document).

 

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One Response to Positive Gearing: a different kind, no margin calls

  1. Peter February 19, 2018 at 9:55 AM #

    Interesting product, especially with a principal-and-interest (P&I) rate only about 100 or so basis points higher than the rate for a P&I loan secured on an owner-occupied residence. The Australian market place needs more products like this, especially as an increasing demographic of people look to build wealth outside super and outside real estate.

    Is Equity Builder capitalised by NAB as a “margin loan”, even though they say there would be no margin calls? I can see why you would want it to be: the regulatory risk weight on margin loans (20%) is lower than what it is for just about every other form of lending, including owner-occ residential mortgages (which is floored at 25%). APRA just announced that they are proposing to review the risk-weight on margin lending, in their discussion paper released 14 Feb 2018. Given the thrust of most of APRA’s other proposals, it seems possible that the risk-weight might be increased, unless APRA are presented with cogent arguments for the appropriateness of the current level.

    I wonder if NAB is proposing to respond to the APRA discussion paper, and offer a view on whether they think the risk-weight on margin loans should be changed, or maintained, and if so on, on what rationale?

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