Parental support is becoming increasingly common for Australians who are looking to buy their first home.
Data from Mortgage Choices latest annual First Home Buyer Survey has revealed 4.9% of all first home buyers had a parent or immediate family member go guarantor on their home loan during 2016.
That figure is up from 3.9% in 2015 and 3.8% in 2014, though Mortgage Choice chief executive officer John Flavell
said the increase is no real surprise.
“This slight jump in demand for home loan guarantors is unsurprising when you consider that property prices have risen fairly substantially across most property markets over the past few years,” Flavell said.
“Given that property prices continue to rise month after month, it is little wonder why so many first home buyers are finding it difficult to put a foot on the property ladder without some form of financial support,” he said.
CoreLogic data shows the median combined capital city dwelling price increased 8.3% in the 12 months to June.
While the arrangement means the lender also takes a mortgage over the guarantor’s property as well as the property that is being purchased, Flavell said going guarantor carries little risk if it is done right.
“Provided the first home buyer can comfortably make their regular mortgage repayments, there is very little risk associated with this type of financial assistance,” he said.
“As such, I would expect to see continued growth in the proportion of first home buyers using guarantors.”
Flavell said a guarantor arrangement can easily save first home bowers thousands of dollars, in some instances eliminate the need for them to save for a deposit, and with a savvy purchase guarantors could soon be released of their obligation.
“By having a guarantor, first home buyers can in most instances borrow the full purchase price and sometimes even the costs associated with purchasing property. The amount of the guarantee depends on the individual lender's policies. The guarantee can vary from the full loan amount to as little as 20% of the loan.
“After a first home buyer builds up equity in their property, their guarantor can ask to be released from the loan.”