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 November 18th, 2018
$
Loan purpose
Offset account
Loan type
Repayment 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.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.87%
3.91%
$600
$0 p.a.
95%
A home loan with no ongoing fee and a redraw facility that you can borrow up to 95% LVR.
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.
4.65%
5.02%
$0
$395 p.a.
95%
No application fee and 100% offset account.
3.87%
3.92%
$600
$0 p.a.
95%
A low deposit mortgage for aspiring home owners. Fees are low and you can make extra repayments.
3.79%
4.75%
$375
$15 monthly ($180 p.a.)
95%
A fixed rate home loan with 100% offset account.
3.79%
4.87%
$0
$395 p.a.
95%
Enjoy a fixed home loan with discounts on rates and other NAB products.
3.75%
4.72%
$0
$299 p.a.
95%
Let the experts help you get a mortgage. Speak to a broker about this sharp fixed rate loan and compare many other mortgage offers from across the market.
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.
4.08%
4.09%
$0
$0 p.a.
95%
Special Owner Occupier Rate. Free Offset Account.
4.09%
5.06%
$600
$8 monthly ($96 p.a.)
95%
Fix in a competitive rate for three years.
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.
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
3.99%
4.86%
$595
$0 p.a.
95%
Split you home loan for free with one of the lowest fixed home loan rates.
3.99%
4.66%
$375
$15 monthly ($180 p.a.)
95%
A three year fixed rate loan with 100% offset account.
4.14%
4.33%
$0
$0 p.a.
95%
Borrow up to 95% LVR with no application fee and low ongoing fee.

Compare up to 4 providers

Rates last updated November 18th, 2018
$
Loan purpose
Offset account
Loan type
Repayment 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
3.59%
3.61%
$0
$0 p.a.
90%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.
3.87%
3.91%
$600
$0 p.a.
95%
A home loan with no ongoing fee and a redraw facility that you can borrow up to 95% LVR.
3.88%
3.89%
$0
$0 p.a.
90%
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
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.
3.59%
4.00%
$845
$350 p.a.
90%
Get a low variable interest rate and buy a property with just a 10% deposit. 100% offset account attached.
3.87%
3.91%
$0
$10 monthly ($120 p.a.)
90%
Get Velocity Frequent Flyer Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
3.69%
4.86%
$0
$395 p.a.
90%
Special discounted rate for first home buyers. Start your home buying journey with 2 years of fixed repayments at a competitive rate plus package discounts. Available with a 10% deposit.
3.79%
3.80%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000. Plus $1,500 cashback offer for eligible refinancers.
3.75%
4.72%
$0
$299 p.a.
95%
Owner-occupiers can enjoy a discounted fixed rate, a rate lock feature and the ability to make additional repayments.
3.87%
3.92%
$600
$0 p.a.
95%
A low deposit mortgage for aspiring home owners. Fees are low and you can make extra repayments.
3.89%
3.93%
$250
$0 p.a.
95%
A variable rate mortgage for low deposit borrowers. Available with just a 5% deposit.
4.08%
4.13%
$600
$0 p.a.
90%
Fund your investment purchase and offset up to $15,000. Available with a 10% deposit.
3.99%
3.92%
$0
$10 monthly ($120 p.a.)
90%
Enjoy a competitive fixed rate with no application fee. Earn double Velocity Frequent Flyer Points to spend on flights and hotels. Terms and conditions apply.
3.74%
4.13%
$0
$349 p.a.
90%
Get a sharp rate plus package discounts and a 100% offset account.
3.75%
4.63%
$0
$299 p.a.
95%
Owner-occupiers can enjoy a discounted fixed rate, a rate lock feature and the ability to make additional repayments.
4.43%
4.28%
$600
$0 p.a.
90%
An interest only investor mortgage that lets you offset up to $15,000. Available with a 10% deposit.
3.69%
4.75%
$0
$395 p.a.
90%
Enjoy a competitive rate with no application fee for this package loan.
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.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
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.
3.94%
4.95%
$595
$0 p.a.
95%
Borrow up to 95% LVR 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%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150000 receive a discounted rate. NSW, QLD and ACT residents only.
3.94%
3.94%
$0
$0 p.a.
90%
Lock in a short interest loan term with a low interest rate.
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
3.79%
4.87%
$0
$395 p.a.
95%
Low deposit home loan. Enjoy flexible repayment options while paying limited fees.
3.85%
4.69%
$0
$349 p.a.
90%
A package home loan with a sharp fixed rate and a 10% deposit option for low deposit borrowers.
4.29%
4.26%
$0
$0 p.a.
95%
Fix your rate for two years with this competitive, low-fee loan. No offset account available.
3.84%
4.53%
$0
$395 p.a.
90%
Enjoy discounts on banking products and insurance with this package loan. NSW, QLD and ACT residents only.
3.69%
4.93%
$600
$0 p.a.
95%
Competitive rates for fixed for 3 years with no ongoing fees.
3.69%
4.08%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.77%
3.82%
$600
$0 p.a.
90%
Buy your home with just a 10% deposit, few fees and a reasonable interest rate.
3.89%
3.94%
$0
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
4.13%
4.14%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150000 get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
4.04%
4.07%
$0
$0 p.a.
90%
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
3.99%
5.35%
$600
$0 p.a.
90%
Competitive rates for fixed for 3 years with redraw facility.
4.04%
4.06%
$0
$0 p.a.
90%
A home loan with no ongoing fees. This loan is available for refinances and purchases.
3.72%
3.72%
$0
$0 p.a.
90%
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
3.99%
4.86%
$595
$0 p.a.
95%
A low 3-year fixed rate with the option to split your loan for free.

Compare up to 4 providers

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