Guarantee loans: what brokers need to know

by Julia Corderoy14 Apr 2015
With first home buyers increasingly turning to their families for help raising a deposit, a Perth-based lender which specialises in first home buyers has told Australian Broker what brokers need to know about family assistance.

After a NAB survey revealed a lift in the proportion of family guarantee loans due to rising house prices, director of Bluebay Home Loans, Don Crellin says brokers must be careful to ensure each party knows their obligations before entering into a guarantee loan.

“I think in most cases, guarantee loans work out fine for both parties. But it is really, really important that the parent or guarantee does truly understand what the obligations are – it is not just as simple as signing a paper and saying it will be okay,” he said.

“You need to look at things such as separations between parties and what happens to the properties in those particular circumstances, or if all of a sudden [your client] can’t afford to repay the home loan and the guarantor is called up and what their obligations are. In that small number of cases where things don’t go as planned, it is really important that the guarantor has been provided that opportunity to fully understand the obligation.”

Crellin even advises brokers to recommend their client seek independent legal advice. 

“In terms of legal factors that can occur particularly with guarantee loans, that’s where a very strong recommendation of that customer going through independent legal advice is really important for a broker to be able to disclose,” he said.

“You have got to be very careful as a broker because you can’t give legal advice, but you should certainly make sure that you make a very strong recommendation that all parties sit down and do understand it.”

However, guarantee loans aren’t the only option for the increasing number of first home buyers needing help to raise a deposit.

“[I]f I look overall, around about half of all first home buyer applicants coming through [Bluebay] are having their parents help in some way or some form. Guarantees are certainly one of them but parents helping out in terms of gifts or informal loans are certainly on the rise too.”

While Bluebay has seen more and more first home buyers relying on different types of family assistance to get into the housing market, Crellin says it is crucial that lenders continue to come up with innovative ways to help first home buyers get onto the property ladder.

“We have seen more and more coming through, but the challenge will be in the deposit gap and lenders being able to come up with innovative ways to be able to help them into the marketplace,” he told Australian Broker

“I hope to see a whole lot of product development there; to further help first home buyers get into the property market.”