Exploring Family Support Options for Your First Home
Bank of Mum & Dad
Research has shown a rise in the number of individuals seeking parental assistance to purchase their first home. According to Finder’s First Home Buyer Report, fluctuations and elevated prices in the local property market are contributing factors to this phenomenon. Those who rely on their parents can enter the property market two years sooner than those who do not. Among borrowers who received parental support, 29 percent took five years or more to save for a deposit, compared to 40 percent of those without such support. Additionally, it enhanced financial security, as those receiving assistance had 41 percent more savings remaining after acquiring a property. The Bank of Mum and Dad remains a privilege accessible only to certain families. Many families lack the financial capacity to provide tens of thousands of dollars for a deposit.
Two Options
Gift - If your parents are willing to assist with a cash deposit, a letter confirming that the assistance is non-repayable is typically sufficient to meet the bank's requirements.
Family Security Guarantee - A Family Guarantee, also referred to as a Family Home Guarantee or Family Support Guarantee, occurs when a family member consents to secure your home loan as the borrower. This implies that if you default on your debt, the responsibility to repay it shifts to the family member. The individual who guarantees the payment of the home loan is termed a ‘guarantor’.
A Family Guarantee is organised into two distinct loans:
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One loan covering most of the property value (typically 80%) – this is exclusively secured by the home you purchase or own.
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One smaller loan for the remaining property value (generally 20%). This loan is secured by the home you buy or own, as well as by a portion of the equity in your guarantor’s property.
It might be worth exploring to see if you qualify for one of many grants, before going down the Family Guarantee path.
Plan It All Out
Mum and Dad may need to evaluate how they manage the loan or gifts to one or more children, seeking legal advice as necessary.
Borrowing from the Bank of Mum and Dad requires careful consideration and planning by all parties involved. Everyone should seek advice, develop a well-thought-out plan, and ensure it is documented and implemented.
