YOUTH BUYING HOMES
THE popularity of parents going guarantor on their children’s loan has risen significantly in recent years, new research has revealed.
According to Mortgage Choice’s annual First Home Buyer Survey, 4.9 per cent of all first home buyers had a parent or immediate family member go guarantor on their home loan.
“This is up from 3.9% in 2015 and 3.8% in 2014,” Mortgage Choice chief executive officer John Flavell said.
“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.”
Data from Corelogic found property prices across the combined capital cities rose 8.3% over the last financial year, with Sydney and Melbourne the stand-out performers.
“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,” Mr Flavell said.
“By having a family member go guarantor on a home loan, first home buyers are not only able to get their foot on the property ladder sooner rather than later, but they can also potentially avoid paying Lenders Mortgage Insurance.”
Today, many lenders allow a family member to go guarantor on a home loan.
They simply use the equity in their property as additional security for the borrower’s loan.
While the primary security for the borrower’s home loan is the property they purchase, the lender also takes a mortgage over the guarantor’s property.
This mortgage does not support the loan directly, but is used to support the guarantor’s financial guarantee.
Mr Flavell said guarantors effectively help borrowers — especially first time buyers — save thousands of dollars.