Commercial broker Acuity Funding has announced the introduction of a new product which could, potentially, reduce some of the risk faced by parents acting as guarantors for their children’s home loans.
Acuity Funding managing director, Ranjit Thambyrajah, tells Australian Broker the product, dubbed ‘Loyalty Plus’, provides an affordable solution for those looking to utilise their superannuation to invest in residential property - even their own home.
“Loyalty Plus is a rewards program that provides a mortgage solution to members. Membership is available to individuals and SMSFs who have an investment in an accredited investment fund,” he says. “Members have the benefit of being able to purchase a property directly for either an investment or an owner occupied property in their personal name.”
Furthermore, says Thambyrajah, members will have access to either a Loyalty Plus shared equity or fixed rate loan, allowing borrowings of up to 95% against the property with no LMI. Instead, mortgage insurance premiums are replaced by a $1,100 risk fee.
However, Thamyrajah says a common request in today’s property market comes from parents and family wanting to assist children to buy their first home, which often involves parents providing a limited guarantee to the bank over the existing family home. The home is then used as a security to provide a loan to the children with minimal deposit – something which can, when things go badly, end in heartache.
“Under the Loyalty Plus product, parents can now have their super with an accredited super fund or in an SMSF, which will provide them with membership benefits. The parents can then pass those membership benefits to any family member they choose, allowing them to access the Loyalty Plus home loan.”
Effectively, this means the borrowers (in this case the children) only require a 5% deposit plus fees – and the 5% is not required to be genuine savings.
“The benefit to the parents under this option is that the property being purchased is the only security for the lender and the parents have no liability or guarantee for the loan.”