Broker group Smartline has endorsed a home loan product it says will assist first home buyers get into the market by allowing parents to help their children buy a property without having to become a guarantor.
Smartline’s executive director Joe Sirianni
says putting your own home on the line to guarantee a child’s debt can be fraught with problems.
“Many parents are keen to give their children assistance to give them that first leg up on the property ladder, which is admirable, but it is a big commitment,” he said.
“Providing a guarantee can, in the worst case scenario, leave the parents open to losing their home and the child can’t or won’t meet their debt obligations to the bank. Even without the worst happening, being a guarantor can still impact on the parents’ ability to borrow or sell the property.”
Non-bank lender Bluebay Home Loans offers a home loan called ‘Parent Assist’ which lets parents help their children apply for a loan without becoming liable. This means the children end up with two loans – one from the bank (for up to 90% of the house value) and the other from the parents (for a minimum of 10% and a maximum of 20%).
The bank manages the repayments, security and paperwork for the parent's loan for the deposit. The children make regular repayments on both loans, with the interest rate on the loan from the parents half that of the main loan.
With first home buyers comprising an all-time low of 11.8% according to the latest Australian Bureau of Statistics data, Sirianni says brokers should be taking advantage of an innovative product like this.
“While some parents may have been very reluctant to provide financial assistance in the past, they should feel far more comfortable knowing they have security over the children's property,” he said.
“It will no doubt make it easier for children to ask for help, and for parents to be able to say yes, knowing they are protected.”