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A recent report revealed the Bank of Mum and Dad to be the fifth largest lender in Australia, lending $65 billion in total to sprightly first home buyers in Australia. The average sum extended by parents to launch their children on the property bandwagon is reported to be $85,380 by Digital Finance Analytics. And, as you might have guessed, more than 50 percent don’t expect to be repaid, as helping their children secure a foothold in the property market is a major concern for most parents. Probably for good reason, too, considering that one-third of the young Australian have been reported to take over five years to save a decent deposit for their purchase.

 
Parents helping children to buy their home
 

There is no denying that more and more youngsters are turning to their parents to cushion their journey into the property market. In fact, family guarantee loans remain a popular measure for first home buyers to fund their sweet home.

Yes, many parents are using the equity in their homes to secure their kids’ home loans.


Family Guarantee Loans

Banks often need extra assurance in the form of a guarantee when they find it risky to lend to a borrower. The reason could be a low deposit, as in the case of most youngsters, or unstable employment history, low credit score, etc.

As parents, you can propel your child’s property buying journey by using the equity in your home to secure their home loan. This reduces the loan to value ratio of your child’s mortgage, saving them more than $25,000 in Lenders Mortgage Insurance (LMI) on a loan size of $600,000.

However, instead of being guided by emotions, it is crucial to consider how going guarantor is going to affect your finances in the future. Apart from being responsible to pay your child’s mortgage in case they default, going guarantor will also reduce your borrowing capacity (learn more here).

But whom do youngsters whose parents are not cash rich or property rich, turn to?


First Home Super Saver Scheme

Earlier this year, the Federal Government introduced a slew of measures to help first home buyers climb the property ladder. One of the schemes, the First Home Super Saver Scheme, which started in July, allows first-home buyers to save for a deposit in their superannuation account. Under this scheme, “individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. These contributions, which are taxed at 15 per cent, along with deemed earnings, can be withdrawn for a deposit. Withdrawals will be taxed at marginal tax rates less a 30 per cent offset and allowed from 1 July 2018.”

The scheme is expected to boost the savings of first home buyers for a deposit by 30 percent as compared to a regular savings account.


First Home Owner Grant

In addition to the Federal Government sponsored schemes, various States are offering one-time grants and stamp duty exemptions to first home buyers, easing their journey into property ownership. Currently, several states are offering boosted grants for a limited period, such as the $20,000-grant offered by the Government of Queensland or the affordability package rolled out by the Government of NSW (learn more here).

Keystart Home Loans, introduced by the West Australia Government, is another great initiative that provides all home owners access to affordable, low deposit home loans with no LMI. For example, couples earning up to $115,000 can borrow a maximum $480,000 in metropolitan areas. You can get more information on the Keystart page here.


Boost your savings with a tailored home loan

There are incentives on offer for first home buyers who can further boost their savings by choosing a home loan with the right features. Instead of going for the lowest rates, compare home loans features to get the best possible deal for your money. You can always take help from a mortgage broker to understand what features you really need in your home loan.

An experienced broker can take the sting out of your home loan by recommending the best-fit products for your situation at a competitive rate. Contact one here.

 

By Vidhu Bajaj,
HashChing Content Writer

 

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