New data from Aussie Home Loans has revealed that guarantor home loans have risen by 71% in the past six years.
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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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
Lender | Advertised rate | Comparison rate | Monthly repayment | Rate Type | Offset | Redraw | Ongoing Fee | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Pre-approval | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Variable | More details | ||||||||||||
| FEATUREDLIMITED TIME OFFER | Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)
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Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)
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| Variable | More details | ||||||||||||
| FEATURED100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES | Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)
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Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)
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| Variable | More details | ||||||||||||
| FEATUREDREFINANCE IN MINUTES, NOT WEEKS | Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)
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Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)
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| Variable | More details | ||||||||||||
| FEATUREDYOU COULD WIN $100k TO PAY DOWN YOUR LOAN* | Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)
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Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)
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| Variable | More details | ||||||||||||
| FEATUREDAN EASY ONLINE APPLICATION | Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)
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Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)
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- Fast turnaround times, can meet 30-day settlement
- For purchase and refinance, min 20% deposit
- No ongoing or monthly fees, add offset for 0.10%
Rates correct as of October 23, 2021. View disclaimer.
Image by Juliane Liebermann via Unsplash
