Australia is responsible for a number of world-changing inventions, from Google Maps and the pacemaker to the black box flight recorder. We’re just as creative with our banking, superannuation and insurance, having invented the plastic bank notes many countries now use and the wi-fi we use for our online banking.
Every year, CANSTAR looks for the products being launched in the area of financial services to make our lives easier and more convenient. The products that CANSTAR judges to be the most innovative in their field are awarded a CANSTAR Innovation Award.
This year NAB has won a CANSTAR Innovation Award for its new Equity Builder loan product.
What is the product?
NAB Equity Builder is the first investment loan in Australia to use the familiar principal and interest (P&I) loan structure. It is a tailored investment loan that is secured by diversified share market investments but without the risk of margin calls. This makes this investment loan easier on both your budget and your peace of mind.
The umbrella credit facility of NAB’s lending platform allows investors to operate multiple P&I investment loans at once for managed funds or ETFs. Loan terms of up to 15 years are available, creating a gearing solution that can be customised to match a particular investor’s financial planning timeframe.
NAB Equity Builder will appeal to investors who…
• Want to invest without the fear of margin calls.
• Want to own their investment assets outright at the end of the loan term.
• Would prefer to use their managed funds as loan security rather than using home equity to finance their investments.
- Peace of mind. Investors know there will not be any margin calls made on their investment loan, so they have financial planning stability. They also know they can progressively repay the loan to zero and own their investments outright at the end of the loan term.
- Consistent cost. NAB Equity Builder costs the same as the variable rate NAB Margin Loan.
- Wide investment choices. Investors can establish multiple P&I investment loans at once, with up to 800 managed funds or ETFs to choose from.
- Interest only safety net. The loan offers the ability to suspend principal repayments when gearing levels fall below 30%.
CANSTAR caught up with NAB to find out more…
Q: NAB Equity Builder is an interesting product. What prompted you to develop it?
A: The NAB Equity Lending business has been serving investors for over 15 years; primarily with our standard margin lending product. The standard margin loan offers the investor enormous investment choice and ultimate flexibility regarding repayment timeframes. The trade-off for this level of investor flexibility is the obligation to monitor and maintain the right balance between the loan and security value. If the facility falls out of balance, a margin call will occur and need to be managed.
From our experience, reinforced by industry research, many goal-oriented investors focus their borrowed funds on acquiring managed investments (i.e. managed funds, listed investment companies or exchange traded funds), and would prefer not to have to plan for a possible margin call event.
The development of NAB Equity Builder (a P&I loan for share market investment) was the direct result of responding to investor/adviser feedback for a new lending solution, where the breadth of managed investment choice was preserved, and greater stability was introduced by removing the margin call mechanism.
Q: Margin Lending has not recovered to its pre-GFC volumes – do you think that NAB Equity Builder will help to overcome some of the investor reluctance?
A: Using borrowed funds to invest into the share market should always be based on the belief that the return opportunities outweigh the cost of borrowing. Even if the longer term view for the share market is positive, the market pathway can be full of short term price movements in both directions.
As NAB Equity Builder provides excellent investment choice into over 800 managed investment mandates and no margin call mechanism, investors can be more confident to create an enhanced exposure to the market, without needing to keep additional funds ready – just in case they need to manage a margin call.
In this way, NAB Equity Builder is better placed to help an investor plan around their longer term view for the market.
Q: What are the benefits of NAB Equity Builder over a traditional home equity loan?
A: NAB Equity Builder and a home equity loan share some characteristics. They both:
- Use a principal and interest loan structure
- Require the discipline to manage monthly repayment obligations
- Provide the ability to invest in a wide range of managed investments
- Let the investor maintain control over the investment distributions
- Permit the withdrawal of funds, if the investor gets ahead of the repayment schedule
- Don’t have a margin call mechanism based on the price movement of the managed investments purchased with the borrowed funds
Where NAB Equity Builder has some additional benefits over a home equity loan:
- Minimum loan is $10,000
- Minimum deposit can be as low as $4,000.
- No home required (important for a young investor)
- The investor’s ability to invest in the share market not linked to the valuation of their home
- The investor is guided, via the approved investment list, to more reputable fund managers
- Principal repayments can be suspended for any investor, when the gearing drops below 30%
- It cleanly separates the management of loans used for the share market, from those used for property investment
Effectively, NAB Equity Builder has many of the perceived positives of a home equity loan.
Plus, it is accessible to a much broader universe of investors – both younger and older.
This product is one-of-a-kind in Australia and would potentially meet a need for investors that want to use their share portfolio as security for a loan but want to avoid the risk of a margin call. Having seen people face margin call after margin call during the GFC, we heartily congratulate NAB for facilitating this type of P&I investment loan, secured by managed funds and ETFs.