House purchasing under the current system relies upon a banking system, which lends money at set or variable interest rates, with repayments spread over 25 to 30 years. As a general guide, any amount of mortgage, say $1,000,000 borrowed at 6.35% over 25 years, will cost the borrower $1,000,000 in additional compound interest repayments. This will make the total amount repaid to be $2 million. If the repayments are spread over 30 years, then the interest rate can reduce to 5.29% and you will still repay a $1,000,000 in interest.

Banks can lend out the same single dollar money up to nine times. This is known as reserve fractional lending. In plain English, the banks print money and lends it out. Although there is a system by which they operate, the fact remains, that this system is making borrowing very expensive and ultimately reduces the amount of privately-owned money in circulation. The only entities that benefit from this system are the banks. The home buyers do not, but they are so obsessed with the ever increasing, albeit artificial, valuation of their property, that they are oblivious to the fact that they are paying 100% interest on the lifetime of the loan.

If banks, via the authority of the reserve bank, can print the money nine times using the same dollar and Governments can issue bonds, which are bought by banks, for which the Government agrees to repay the banks an annual interest of 3%, then why cannot the Government simply cut out the middlemen and print the money themselves, interest free. The short answer is that they can, it is known as sovereign money. However, it is extremely important to understand that a government cannot just print money endlessly. To do this will increase the money supply in circulation, which in turn will increase demand, which will decrease supply, thus ultimately leading to price increases or what is commonly known as, inflation. Governments that simply print more and more fiat currency, ultimately plunge their economy into hyper-inflation, which destroys the value of the economy, leading to a severe and lasting depression.

If a government is going to control the issuing of its own money supply, without the need for bonds, banks or borrowing from the IMF, then they must apply the Golden Rule. The Golden Rule is that they must only print money for use in projects where the money will ultimately be repaid in full or (RIF). By operating under (RIF), the Government will print a certain amount of money, normally the amount required for a particular project. The money will pay for the project and then the users of the finished project will, over-time, repay bit by bit the amount of the original loan. In the end, all the money will have been repaid and the Government will be back to zero, but they will have a completed project to show for it. This process can be used to build roads, rail, bridges, NBN, airports, ports and buildings. Basically, anything for which a charge or fee-for-use will be applied.

Example: The Government prints $100 million dollars, they pay for a new highway, the highway will have tolls, for which the user pays to use. Over “X” number of years the tolls will eventually repay the Government the $100 million loan. At the end of the period, either the road can be used for free or the tolls are continued to be collected, to cover the cost of maintenance and up keep of the road.

This same method can be applied to home loans. Rather than obtaining a loan through a bank and paying 4% interest over 30 years, the mortgagee can borrow the money from the Government National State Bank.

The Government will only be responsible for lending the money, it will be up to the borrower to seek a loan via an independent Mortgage Broker. The role of the Mortgage Broker will be to vet the applicant and determine the amount that they can borrow. The Mortgage Broker will submit the application and supporting documentation to the Government Bank for final approval. Once approved the money will be deposited into the borrowers nominated bank account, pending the successful purchase of their existing property. Where a borrower is building a new home, then the incremental instalments will be paid directly to the builder.

Mortgage Brokers will charge the client an up-front fee for service, they will also receive a long tail commission payment for the life of the mortgage. This is basically how the system works presently. This will keep the estimated 36,000 Mortgage Brokers in business.

All borrowers will be expected to engage a conveyancing solicitor and a pest and structural inspector for any property that they are seeking to purchase. Fees are payable by the borrower to these service providers.

As the Government will be lending the money interest free, it will enable the borrower to either repay the loan quicker or to spread the repayment over a longer period, which will reduce the monthly repayments. As there is no compound interest, then it does not matter whether the money is repaid monthly, fortnightly or weekly as there is no interest saying component to be considered. There will be no need for having an offset account either.

On a mortgage of $350,000 at 4% interest over 30 months, the monthly repayments, which include capital and interest, are approx. $1600. This is $19,200 a year, which equates to a total repayment of $576,000.

Under our system the same mortgage of $350,000 with no interest spread over 30 years equates to $11,667 per year or $973 a month. This is a $627 reduction in the monthly repayments.

Alternatively, they could choose to repay the mortgage at $1600 a month, which means, that it will only take 18.2 years to repay the loan. A reduction of nearly 12 years. Either way the borrow will be far better off. Low-income earners will now be able to afford their own home and higher earners will be able to repay their mortgage far quicker.

Additional advantages of this system come into effect when the borrower fall on hard times. Under the current system, if the borrower becomes unemployed or is unable to work due to injury, then the banks will allow a short period of grace, whilst the borrower seeks new employment or recovers, but if the borrower does not find employment or cannot recommence their repayments, then they will either be forced to sell or they will default and the bank will foreclose on their mortgage and repossess the home. The owners will be evicted and placed on the street. Then they will either have to find alternative private rental accommodation or seek assistance from the Government.

Under our system, as the Government is the bank, when borrowers fall on hard times, the loan can be restructured to be spread over a longer period, thus reducing the monthly instalments, or the loan can be converted to a rent/loan. The mortgage can be suspended and the owner simply pays a fixed monthly rental fee. Their equity in the property is secured and not lost. If they are injured and can never work again, then they simply stay in the home as a renter, until their death, whereupon the property is sold and the equity is distributed to their next of kin. If the renter finally finds employment, then they can recommence paying their mortgage. The rental amounts paid will be deducted from the mortgage.

The great advantages of this scheme are, that no one ever again needs to be made homeless, because of arrears or unforeseen circumstances. The loan can be restructured to provide maximum benefit and support to the borrower in their time of need. In the worst-case scenario, we could let the borrower live rent free, until their death. This would occur where a borrower is severely disabled and cannot ever return to work. The home can then be modified to enable to them to live in the home. The thought that you will never lose your home and be “turfed” out on the street, will improve the morale of people. The fact that they can pay their mortgage off quicker, will enable them to free up money to purchase other things, or if they are low paid, they will be able to buy a home of their own.

The implementation process is critical, for currently we have a system of private landlords, with paying tenants. These properties are investments, which rely upon the rents to pay for the investment. If tenants’ can, suddenly, purchase their own home, then we could end up with a situation where we have millions of investment properties without any tenants. It is inevitable that as the number of tenants purchasing their own homes increases, the number of investment properties will decrease.

It is important that property investors realise that investment property ownership, based upon having a tenanted property, will become less common, to the point where approximately only one percent of homes will be tenanted rental properties. This is because there will always be people who do not wish to buy and prefer to rent or must rent, for whatever reason.

We would first introduce this new mortgage system to the new first-time new home buyers, followed by the first-time existing home buyers. We anticipate that landlords would offer their properties for sale, first to the incumbent tenant and then to the wider public. It is important for the property investors, not to get spooked and embark upon panic selling. This will only serve to crash the market and destroy their investment. We would like to see an orderly selling of these properties, so that investors can receive a fair payment for their investment. We anticipate that the process of properties changing hands from investors to tenants/new home owners to transpire over one to five years.

From the investor’s perspective, this Government backed mortgage scheme will spell the end of home investment portfolios. At first it would appear to be a bad idea, but when one realises that property investment is to some degree a mugs game, especially when you factor in the interest paid, the capital gains tax levied against your investment, plus the volatility of the market and the ever-present threat that the property might not be able to be sold or by a quirk of fate become worthless, then you might be better off investing your money elsewhere. So, as to sweeten the deal, we propose that any investment property that is sold, following the introduction of our scheme, will not be subject to any capital gains or other taxes. This will mean that the investor gets to keep all their profit. Bearing in mind that eventually they would have to sell the property, this is an excellent outcome for the investor.

It will still be permissible to purchase and own home investment properties. In fact, you will still be able to negativity gear the properties, if you are able to do it. The simple fact will be that it is unlikely that you will have any renters to rent the property.

Currently we have no plans to offer the Government Mortgage Scheme to investment properties. It will purely be available for home owners. Investors that wish to borrow to buy investment property will need to organise their loans through the normal banks and normal bank interest rates.

It will not be possible to borrow against your GMS backed home, whilst you are repaying the loan. However, once you have purchased and own your home, then you can do with it as you please. However, it must be remembered that there are risks to investing and poor investing could cost you your home. If this happens then the previously mentioned safeguards will not apply and you could end up on the street.