The 'Bank of Mum and Dad' has become a common home financing strategy for young Australians looking to break into a booming property market.

An analysis of Aussie First Home Buyer data over the past six years revealed an upward trend in the total number of guarantor loan settlements made over this period.

The data shows there was a 71% increase in the number of loan settlements from the 2015 financial year to the 2021 financial year, indicating a growing interest for guarantor loans over the past few years, which is likely driven by increasing property prices.

Dave Hyman, CEO of Lendi Group - parent company of Aussie - warns that parents lending to their children doesn't come without risk.

"If you are the Bank of Mum and Dad, you really should consider your circumstances carefully before you become a guarantor – if something unexpected takes place, then the onus will be on you to step up and take responsibility for the loan," Mr Hyman said.

"Our data shows an upward trend in guarantor loans over the past few years, its important to note that guarantor loans only make up 10% of home loans within the First Home Buyer market."

Recently, the 'Bank of Mum and Dad' became Australia's ninth biggest mortgage lender according to analysis by Digital Finance Analytics (DFA).

It's a tongue-in-cheek moniker describing adults buying property with their parents' help, and DFA's research found 60% of first time buyers are getting financial help from their parents.

Parental contributions averaged $92,000 in April 2021, and in the past financial year alone, guarantor loans increased by 21%. 

With strong house price growth through the year, having a guarantor on a home loan can increase the borrowing power for first home buyers.

A guarantor home loan allows a close relative (typically a parent) to use the equity in their home as security for part or all of the buyer's deposit while promising to be responsible for the home loan's repayments should the borrower struggle.

It means the buyer can get away with having little to no deposit and avoid paying costly Lenders Mortgage Insurance (LMI).

Some lenders even allow guarantor home loans to borrow up to 110% of the home's value.


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Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
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80%
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$2,434
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$250
60%
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Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.


Image by Juliane Liebermann via Unsplash





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