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

Adam Smith 13 September 2017 NEWS

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 August 19th, 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%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
3.49%
3.52%
$500
$0 p.a.
95%
This mortgage combines a very sharp interest rate with a 100% offset account and it's available with a 5% deposit.
3.59%
3.99%
$600
$395 p.a.
95%
Get interest rate discounts and waived fees on this package loan with a 100% offset account.
3.94%
3.99%
$600
$0 p.a.
95%
A low deposit mortgage for aspiring home owners. Fees are low and you can make extra repayments.
4.08%
4.09%
$0
$0 p.a.
95%
Special Owner Occupier Rate. Free Offset Account.
4.64%
4.69%
$600
$0 p.a.
95%
New customers can score a discounted rate and access to a redraw facility.
4.48%
4.70%
$595
$0 p.a.
95%
Discount off the standard variable rate and no application fee.
4.33%
4.34%
$0
$0 p.a.
95%
A special investment rate and an offset account.
3.94%
4.85%
$595
$0 p.a.
95%
Split you home loan for free with one of the lowest fixed home loan rates.
3.75%
4.92%
$0
$395 p.a.
95%
This 2 year fixed ANZ Breakfree Package rate comes with package discount and product bundle. Terms and conditions, package fee and fees, charges & eligibility criteria apply.
3.99%
4.93%
$0
$0 p.a.
95%
A low deposit investor mortgage with a discounted, competitive rate from one of the big 4 banks.
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.
3.98%
4.30%
$0
$299 p.a.
95%
Borrow more than $1 million and enjoy a 100% offset account and rate discount.
3.99%
4.92%
$0
$395 p.a.
95%
Borrow up to 95% LVR (subject to approval) and fix your interest repayments for the next 3 years.
3.99%
4.90%
$0
$395 p.a.
95%
Pay no application fee and fix your interest for 3 years with this ANZ package home loan.
3.89%
4.94%
$0
$395 p.a.
95%
Fix your rate for 2 years and know your repayments giving you ease in budgeting.
3.89%
4.88%
$0
$395 p.a.
95%
Low deposit package loan with a range of discounts. Earn up to 500,000 Velocity Points to spend on flights, hotels and more.
4.19%
4.20%
$0
$0 p.a.
95%
Borrow up to 95% LVR and pay no application fee if your loan is over $150K for a limited time.
3.95%
5.43%
$0
$395 p.a.
95%
Fund your property portfolio with a low deposit package loan from ANZ. Bundle your loan with credit card and bank account for discounts.
3.99%
4.85%
$0
$395 p.a.
95%
Competitive fixed rate package loan. For a limited time you can earn Velocity Points to spend on hotels and flights.
4.24%
4.27%
$0
$0 p.a.
95%
Buy a home with just a 5% deposit and get flexible repayment options and a redraw facility.
4.09%
4.46%
$0
$350 p.a.
95%
4.10%
5.54%
$600
$10 monthly ($120 p.a.)
95%
Borrow up to 95% LVR and enjoy a 100% offset account with a low ongoing fee.
4.19%
5.46%
$0
$395 p.a.
95%
A package investment loan with a competitive, discounted interest rate and 0 application fees.
4.19%
5.37%
$0
$395 p.a.
95%
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.
4.89%
4.90%
$0
$0 p.a.
95%
Borrow up to 95% LVR and pay no application fee if your loan is over $150K for a limited time.
4.39%
4.77%
$0
$395 p.a.
95%
A package home loan with 100% offset account.

Compare up to 4 providers

Rates last updated August 19th, 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%
Borrow up to 110% with a guarantor
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
3.88%
3.89%
$0
$0 p.a.
90%
Low deposit, low rate mortgage
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
3.65%
3.66%
$0
$0 p.a.
90%
Competitive interest rate and low fees. Available with a 10% deposit. Partial offset account attached (offset up to $15,000).
3.88%
4.40%
$0
$395 p.a.
90%
Lock in a very competitive 2 year rate and get package discounts on your credit card and offset account.
3.89%
4.94%
$595
$0 p.a.
90%
10% deposit option available
Borrow up to 90% of the value of the property you're buying and pay no application or ongoing fees.
3.69%
4.54%
$0
$395 p.a.
90%
10% deposit option available
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
3.98%
4.41%
$0
$395 p.a.
90%
Take advantage of a low 3 year fixed rate, 40% offset account and no application fee.
3.94%
3.94%
$0
$0 p.a.
90%
Lock in a short interest loan term with a low interest rate.
3.69%
3.70%
$0
$0 p.a.
90%
Cut down on interest payments with a 100% offset account
Package your loan and get an interest rate discount and help from an HSBC relationship manager. Low fees help you save even more.
3.84%
4.53%
$0
$395 p.a.
90%
10% deposit option available
Enjoy discounts on banking products and insurance with this package loan. NSW, QLD and ACT residents only.
3.70%
4.13%
$0
$395 p.a.
90%
Get this loan with a 10% deposit
Package your loan with an eligible credit card for discounts on rates and fees, and get a 100% offset account.
3.94%
3.99%
$600
$0 p.a.
95%
Low deposit home loan
A low deposit mortgage for aspiring home owners. Fees are low and you can make extra repayments.
3.76%
4.15%
$0
$395 p.a.
90%
Discount special offer with a 100% offset account
A high maximum LVR home loan with redraw facility and additional payments. Get this mortgage with a 10% deposit.
3.68%
3.69%
$0
$0 p.a.
90%
Available with a 10% deposit
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
3.72%
4.11%
$0
$349 p.a.
90%
10% deposit option available
Package your loan with other AMP products and save on rates and fees.
3.84%
3.89%
$600
$0 p.a.
90%
Low, discount interest rate
Buy your home with just a 10% deposit, few fees and a reasonable interest rate.
4.13%
4.14%
$0
$0 p.a.
90%
Available with a 10% deposit
Access a fee-free offset account and a special interest rate for investors.
4.04%
4.07%
$0
$0 p.a.
90%
Get this loan with a 10% deposit
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
3.59%
3.99%
$600
$395 p.a.
95%
Get interest rate discounts and waived fees on this package loan with a 100% offset account.
3.89%
3.94%
$0
$0 p.a.
90%
Available with a 10% deposit
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
3.83%
3.83%
$0
$0 p.a.
90%
Special discount rate
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
3.99%
5.17%
$600
$0 p.a.
90%
Available with a 10% deposit
Competitive rates for fixed for 3 years with redraw facility.
4.04%
4.06%
$0
$0 p.a.
90%
Save on interest with 100% offset account
A home loan with no ongoing fees. This loan is available for refinances and purchases.
3.49%
4.57%
$0
$395 p.a.
90%
Save on interest with a 100% offset account
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.94%
4.85%
$595
$0 p.a.
95%
Lock in a competitive rate for 3 years
A low 3-year fixed rate with the option to split your loan for free.
5.75%
5.94%
$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.
4.24%
4.27%
$0
$0 p.a.
95%
Low deposit loan for investors
Buy a home with just a 5% deposit and get flexible repayment options and a redraw facility.
3.99%
4.92%
$0
$395 p.a.
95%
Competitive fixed interest rate
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.
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.
3.79%
4.18%
$0
$375 p.a.
90%
Get this mortgage with a 10% deposit
Package loan with a competitive rate that also comes with a 100% offset account.

Compare up to 4 providers

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