Buying a home for some Australians has become a family affair, with new research showing more parents providing financial assistance to their children.
Research released this week by Mortgage Choice shows that nearly 60% of respondents would consider gifting or lending money to their children to help them buy a home.
With property prices high and continuing to rise, home ownership assistance from the Bank of Mum and Dad is welcome news for young Australians trying to get a foot onto the property ladder.
For Mortgage Choice CEO Susan Mitchell, this is not really surprising, as she sees most parents will do what they can to help their children achieve their goals.
“So, in a housing market recording such phenomenal growth, it’s perfectly understandable that parents look for ways to help their kids buy a home, whether that be as a guarantor or providing them with a gift for their home loan deposits”, she added.
The latest CoreLogic Hedonic Home Value Index revealed national dwelling values rose 1.8% over April 2021 – 10.2% higher than the COVID low in September 2020.
“The average dwelling price in Australia’s capital cities, in particular Sydney and Melbourne, are prohibitive which means those looking to buy their first home will need all the help they can get”, Mitchell said.
Parental support can come in many forms, such as providing a cash gift to contribute to the deposit or by becoming a guarantor on their loan.
A majority of respondents (53%) said they would go guarantor on a home loan for their child. A further 45% said they would consider using the equity in their home to help fund their child’s first home purchase.
“Property equity is a tool parents can use right now to help their children realise their homeownership goals”, Mitchell said, adding that Mortgage Choice data revealed 6.14% of first home buyer home applications used a guarantor in 2020.
“Getting into the market with a guarantor loan means that parents won’t have to give their kids money. Instead, they can use the equity built up in their home.”
Mitchell said that being a guarantor on a loan eliminates or reduces the amount the child needs to raise for a deposit and can get them into the market sooner. Instead, the guarantor uses the equity in their home as additional security against the child’s loan.
“This can also help reduce the Loan to Value Ratio to reduce or remove the costs of LMI.”
She warned, however, that parents should be aware that going guarantor is not a straightforward process.
“Borrowers and their guarantors should seek legal advice to ensure they understand their obligations and consult a qualified mortgage broker to ensure the loan is structured to minimise risk.
“Brokers have helped many parents go guarantor, so they are well placed to advise you and your children of all that is involved”, she concluded.