A new home loan product can help you get into the market with no deposit, and without risking your parents’ house.
Saving a deposit is one of the biggest barriers to buying your first home. Lenders require at least a 5% deposit, and with the median Australian dwelling price hovering near $550,000, this is a significant chunk of cash.
In the past, lenders offered 100%, no deposit home loans. Following the global financial crisis, these 100% home loan products disappeared, leaving guarantor loans as the sole way to buy a home with no deposit. However, an Australian lender recently released a product that helps first home buyers get into the market while easing the burden on parents to give a financial guarantee to their kids.
What is the Parent Assist Home Loan?
The Parent Assist Home Loan is a product offered through a single Australian lender, Bluebay Home Loans. It allows parents to loan their children from 5% up to 20% of the purchase price of a house. The rest of the purchase price is supplied by the lender in the form of a traditional home loan.
The parental loan is managed by the third party lender, with interest calculated at half the rate of the home loan. This enables first home buyers to buy without a deposit. If parents lend 20% of the property’s purchase price, buyers can also avoid paying for lenders mortgage insurance (LMI).
How does it differ from a guarantor loan?
The Parent Assist Home Loan is different than a guarantor home loan because parents don’t have to offer their own home as security for the loan.
A guarantor home loan allows parents to use the equity in their home as security for their child’s home loan. While this can also allow buyers to purchase a home without a deposit and potentially avoid LMI, it can also put their parents’ home at risk. This is because the parental home is offered as security on the loan, so if the child defaults on the loan, the lender can seek recourse from the parents, who could even be forced to sell their family home to repay the loan.
By contrast, the Parent Assist Home Loan is structured as a loan from parent to child. Parents don’t have to use their home as security, and because the product is offered as a legally binding loan, parents can be certain to recoup the money they lend. The loan has the added benefit of generating a return for parents.
How do I pay it back?
The Parent Assist Home Loan is repaid like a regular home loan, but your parents’ portion of the loan is repaid when you sell your home or refinance your mortgage.
You can also choose to repay your parents when you’ve built up enough equity in your home. Also, if you make extra repayments on your home loan, the extra funds will be applied to your parents’ portion of the loan first.
Can my parents gift my deposit?
A parental loan could enable you to enter the property market much sooner than if you had to save a deposit, but couldn’t your parents just give you the money for your deposit without the expectation of repaying it?
While your parents can gift funds to you for your deposit, lenders generally require you to have some genuine savings of your own. The minimum amount for genuine savings is usually 5%. So even if your parents are willing to give you obligation-free funds for your home loan deposit, you’ll still have to save 5% yourself.
By contrast, the Parent Assist Home Loan enables you to purchase with no genuine savings, and no deposit funds of your own.
Can my parents just purchase part of the property?
Another alternative to guarantor loans is co-owning a house with your parents. In this arrangement, your parents could buy part of the property and be listed on the title as tenants in common. This also enables you to buy without a deposit or genuine savings.
However, this differs from the Parent Assist Home Loan because having your parents listed as co-owners would make you ineligible for any First Home Owner Grants (FHOGs) offered in your state or territory. With the Parent Assist Home Loan, you could still be eligible for the FHOG, depending on the price of the home you’re purchasing.
How do I get a Parent Assist Home Loan?
The Parent Assist Home Loan is only offered through Bluebay Home Loans. You can apply through their website.
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