Parental loans spike as house prices soar

by Julia Corderoy20 Jun 2016
The Mortgage and Finance Brokers Association of Australia (MFAA) has reported a spike in parental loans through brokers as house prices continue to rise across the country.

Parental guarantee loans now represent over 15% of loans written for some of its members, the MFAA has reported. The association said it has witnessed a trend in requests for these types of loans over the past three years.

Melissa Gielnik, a director of the MFAA and managing director of Smart Lending said the MFAA expects this trend to continue.

“The housing affordability issue gripping the nation for first home buyers is not improving. Many parents who have built up equity in their home are ideally placed to help their child or children move onto the housing ladder sooner,” she said. 

“In recent months the banking industry has announced significant changes to tighten lending policies for borrowers. There is no longer an option to borrow 100% of the mortgage and associated fees. 

“St George is offering a loan covering 97% of the mortgage cost, while most lenders require a minimum of 95%.  A 5% deposit, combined with stamp duty plus mortgage insurance fees of around 3.2% of the overall house price adds up to a significant deposit for any young person.”

According to data from CoreLogic, house prices across the combined capital cities rose 1.6% over May, taking values 5% higher over the calendar year to date and 10% higher over the year to May.

To combat affordability hardship, Gielnik said brokers bear a responsibility to educate younger generations about financial literacy. 

"We are also combating a new generation being Generation Y, many of which are now trying to enter the mortgage market. Generally, they live week to week and don't have a savings pattern and perhaps feel more entitled than other generations. 

“Education is the key. We need to get back to basics and teach children from a very young age how to save and the rewards which can be achieved from working and saving.”