Tuesday, July 10th, 2018
For today’s first-home buyers, the idea of ever making it out of the rental trap can seem overwhelming and well out of reach. It’s not all doom and gloom though, and with the right education and support, young people can still look forward to making their home-ownership dreams come true, even if it might take a little extra help along the way.
High house prices and tough competition from other keen buyers, as well as passionate property investors keen to add another property to their portfolio have combined to create a difficult market for younger buyers to enter.
The news that things might even get worse for new home buyers, thanks to APRA (the Australian Prudential Regulation Authority responsible for overseeing all the banks, credit unions and building societies) sharing its worries about the continued growth in lending to more high-risk borrowers – a demographic that typically include borrowers who contribute a deposit less than 20%. By making it clear that it hopes the lending industry takes a less risky attitude to the choices it makes about borrowers, the regulator has set the scene for a tightening of loan application screening.
By encouraging banks and financial institutions to avoid lowering lending standards, the flow-on will be prospective home-buyers and investors who get knocked back on mortgage application due to tighter lending guidelines.
So, what is the alternative for younger buyers keen to get a foot in the property market door?
It might not suit every family but for those who do have access to the resources, considering a little help from mum and dad in the form of a legal parental guarantee towards a major loan can be the difference that gets a loan application approved.
For parents who have a property with enough equity, they can use this equity to help their own children enter the property buying market – and often with less costs and less ongoing interest.
When young people balance their budget to pay for rental properties at the same time they try to save for a home loan deposit, the reality is that even scraping 5% together can be an incredible challenge.
But with such a small deposit behind them, applying for a mortgage that requires them to borrow more than 80% of the purchase price adds up to a blow-out in fees and costs including Lender’s Mortgage Insurance and Stamp Duty.
By offering a parental guarantee for your child’s mortgage application, launching their life as potential property owners can be a positive thing. Just ensure you get the right legal advice that protects your interests – the last thing you want is to have your own hard-earned property investment strategies put at risk because of financial stress your child might experience.
Talk to your accountant, your financial planner and a trusted loan broking specialist and always, always do your research. The future for your children can look brighter and you’ll feel great knowing you’ve helped them get out of the rental trap and into their own home.
For more information about parental guarantees and other tips to make applying for a loan even easier, talk to our lending specialists at Loans Actually today.