Bank of mum and dad still a key property option for new buyers

Adam Smith 13 September 2017

Mother and father signing contract

Learn how you can help your kids get into the property market while avoiding risk.

It’s becoming increasingly common for parents to help their kids get a foot on the property ladder. And with house prices soaring, it’s easy to see why.

The latest figures from CoreLogic show the median capital city dwelling price in Australia is now $645,405. The situation becomes even more dire when examining Sydney, where the median price is an astounding $909,914.

With lenders requiring at least a 5% deposit in order to qualify for a home loan, it’s little wonder kids are turning to their parents for help. Here’s what you need to know before you open up your wallet.

Guarantor loans can be a solution

Few people are so fortunate as to have large amounts of cash readily accessible. So if you want to help your kids get into the market but don’t have liquid assets to hand them for a deposit, you could consider a guarantor loan.

A guarantor loan is structured to take the place of a deposit by using your property as security. Basically, a second mortgage on your home acts as the deposit for the mortgage on your child’s property.

There are a few notable upsides to this:

  • Deposit. You don’t have to come up with cash to help cover a deposit. The equity in your home does the work for you.
  • Avoid LMI. A guarantor loan can help your kids avoid paying costly lenders mortgage insurance (LMI) premiums. LMI is charged on home loans with a loan-to-value ratio (LVR) below 20%. If you use the equity in your home as a guarantee, it can serve as the 20% deposit, eliminating the need for LMI.
  • Temporary. Guarantor loans are a temporary situation. You aren’t on the hook for the long-term. Instead, as soon as your child has built up 20% equity, you can be released as guarantor and your obligation ends.

Now, the primary drawback of these loans is that you’re risking the equity in your home. If your child defaults on their home loan, you’re liable for part of the debt. This can be a risky proposition, so it’s important to be realistic about your child’s financial discipline and ability to repay.

Learn more about guarantor home loans

Gifting a deposit

Illustrated hand holding a present
If you are in the position to give your kids a sum of cash to help make up a deposit, this is certainly an option. However, there are a couple details you’ll need to consider.

First, your child will still need to come up with some genuine savings on their own. Lenders are generally happy to accept a monetary gift as a portion of a deposit, so long as the borrower has some genuine savings. Usually, the threshold is 5%. Genuine savings generally means money held in an account for three months or longer. If your child can come up with 5% of the purchase price of a property, you’re free to help fund a bigger deposit.

Second, the gift has to actually be a gift. This means you can’t just lend your child money with the expectation that it will be paid back. Lenders would look at this as another debt, which would reduce your child’s borrowing power. Instead, you’ll need to sign a statutory declaration indicating that the funds you’re supplying are a gift and do not have to be repaid.

It’s good to have skin in the game

While helping your child get into the property market can be emotionally rewarding, it can also be dangerous if they don’t have any of their own funds on the line.

Research from the Reserve Bank of Australia shows that 30% of borrowers who need help from their parents to pay for a deposit later find themselves in financial stress.

Making sure your kids supply some up-front funds themselves can help them develop the financial discipline they’ll need in order to keep on top of home loan repayments.

Get it in writing

Helping your kids get into the property market is a big commitment. In order to safeguard your own financial future you need to make sure you outline clear expectations.

If you’re giving deposit funds as a gift, there may be no strings attached. However, if you’re serving as a guarantor for your child’s home loan it can be crucial to lay out your expectations in writing.

It could be worth consulting a solicitor before you choose to serve as a guarantor. They can help you outline clear expectations and a timeline in which you expect to be released from your guarantor obligations. Being clear and transparent about your expectations can not only protect your financial future, it can protect your relationship with your kids.

Ready for the next step? Compare guarantor and low deposit home loans

Rates last updated February 25th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.74%
3.74%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans
require no LMI and no deposit. NSW, Qld and ACT only.
3.99%
4.91%
$0
$395 p.a.
95%
Enjoy a 2 years fixed package with redraw facility.
3.98%
5.13%
$600
$8 monthly ($96 p.a.)
95%
A fixed rate home loan with additional repayment options.
350K NAB Rewards Points offer available. Terms and conditions apply.
4.09%
4.12%
$0
$0 p.a.
95%
This loan has a high max insured LVR, making it an option for low deposit borrowers.
3.94%
3.97%
$0
$0 p.a.
95%
Special Owner Occupier Rate. Free Offset Account.
4.04%
5.05%
$600
$8 monthly ($96 p.a.)
95%
Fix in a competitive rate for three years. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.75%
5.05%
$0
$299 p.a.
95%
A fully featured home loan with an offset account and discounts available.
4.14%
5.06%
$600
$10 monthly ($120 p.a.)
95%
Get a 2-year fixed rate with flexible repayment options to help you save.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.19%
4.83%
$0
$395 p.a.
95%
You can save on a host of Westpac products by packaging your 5-year fixed rate home loan.
5.55%
5.74%
$600
$10 monthly ($120 p.a.)
95%
Enjoy a competitive interest rate, make fee free extra repayments and a redraw facility.
4.45%
4.85%
$0
$395 p.a.
95%
Pay no application fee with 100% offset account with redraw facility and borrow up to 95% LVR.
4.62%
4.67%
$500
$0 p.a.
95%
Ideal for first home owners or anyone who wants a no-frills, basic variable rate home loan.
3.68%
3.69%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
5.24%
5.38%
$600
$8 monthly ($96 p.a.)
95%
The Westpac Rocket Repay Home Loan lets borrowers to own their home sooner with a 100% offset to save on interest.
4.70%
5.09%
$0
$395 p.a.
95%
A package home loan with discounted interest rate.

Compare up to 4 providers

Rates last updated February 25th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.69%
3.69%
$0
$0 p.a.
90%
A special limited time offer for owner occupiers. An IMB Transaction Account must be opened with this loan.
3.74%
3.74%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans
require no LMI and no deposit. NSW, Qld and ACT only.
3.59%
3.60%
$0
$0 p.a.
90%
Enjoy a low variable rate with no ongoing fees and borrow up to 90% of the value of the property.
3.77%
3.81%
$200
$0 p.a.
95%
A basic home loan with a low interest rate and a redraw facility available.
3.65%
3.66%
$0
$0 p.a.
90%
A competitive variable rate home loan with no application fee.
3.69%
4.86%
$0
$395 p.a.
90%
A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.59%
3.96%
$0
$349 p.a.
90%
A variable package loan for a larger loan size with no monthly fees.
3.74%
3.74%
$0
$0 p.a.
90%
A competitive variable rate with a redraw facility. NSW, QLD and ACT residents only.
3.69%
4.00%
$0
$350 p.a.
95%
Fix your rate for 3 years and borrow up to 95% LVR.
3.89%
5.40%
$0
$395 p.a.
95%
A package investment loan with a competitive, discounted interest rate and 0 application fees.
3.89%
4.87%
$0
$0 p.a.
90%
Enjoy a low interest rate and borrow up to 90% (with LMI) of your property's value.
3.65%
4.84%
$0
$395 p.a.
90%
A 2 years fixed platinum package that has $0 application and a loan redraw facility.
3.74%
3.77%
$0
$0 p.a.
90%
A home loan with a special rate for owner occupiers. Free offset account.
4.04%
4.06%
$0
$0 p.a.
90%
A home loan with no ongoing fees. This loan is available for refinances and purchases.
4.09%
4.12%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
3.49%
4.49%
$0
$375 p.a.
90%
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.88%
4.89%
$0
$395 p.a.
95%
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.94%
4.79%
$0
$0 p.a.
95%
A low 3-year fixed rate with the option to split your loan for free.
3.74%
4.57%
$445
$0 p.a.
90%
A two year discounted rate which reverts to an ongoing life of loan discount afterwards.
4.17%
4.21%
$600
$0 p.a.
95%
A competitive no frills home loan. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.84%
4.83%
$0
$0 p.a.
80%
Get a competitive 2-year fixed rate with no application or ongoing fees.
3.99%
5.25%
$600
$8 monthly ($96 p.a.)
95%
Enjoy a low rate fixed home loan with the ability to borrow up to 95% of the property value.
350K NAB Rewards Points offer available. Terms and conditions apply.
3.99%
4.77%
$0
$0 p.a.
80%
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
5.40%
5.59%
$0
$15 monthly ($180 p.a.)
95%
An online bad credit home loan for those who may have had some bad marks on their credit history.
4.09%
4.12%
$0
$0 p.a.
95%
This loan has a high max insured LVR, making it an option for low deposit borrowers.
3.68%
3.69%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
3.64%
3.65%
$500
$0 p.a.
95%
A basic home loan with a promotional variable interest rate.
3.88%
4.88%
$0
$395 p.a.
95%
Refinance from your existing loan and get a $1,250 rebate. Lock in a discounted fixed rate with a low service fee.
4.19%
3.90%
$0
$0 p.a.
80%
3.99%
3.74%
$0
$0 p.a.
95%
Fix your rate for two years with this competitive, low-fee loan. No offset account available.
3.69%
3.71%
$0
$0 p.a.
90%
A discounted interest rate home loan with no monthly fees.
3.68%
3.69%
$0
$0 p.a.
90%
Get a low variable rate along with some important basic features.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.09%
3.79%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
3.99%
4.00%
$0
$0 p.a.
95%
Commonwealth Bank are currently waiving the $600 establishment fee for customers who take out this home loan.
3.94%
4.91%
$0
$395 p.a.
95%
Borrow up to 95% LVR (subject to approval) and fix your interest repayments for the next 3 years.
4.45%
4.85%
$0
$395 p.a.
95%
Pay no application fee with 100% offset account with redraw facility and borrow up to 95% LVR.
4.62%
4.67%
$500
$0 p.a.
95%
Ideal for first home owners or anyone who wants a no-frills, basic variable rate home loan.
5.24%
5.38%
$600
$8 monthly ($96 p.a.)
95%
The Westpac Rocket Repay Home Loan lets borrowers to own their home sooner with a 100% offset to save on interest.
4.70%
5.09%
$0
$395 p.a.
95%
A package home loan with discounted interest rate.

Compare up to 4 providers

Latest home loans headlines

Image: Shutterstock

Get more from finder

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, read the PDS or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.
Ask a question
Go to site