As dwelling prices continue to rise across the country, more first homebuyers are looking to their parents and immediate family members to act as guarantors on their home loans.
The results of the annual First Home Buyer Survey conducted by Mortgage Choice revealed that in 2016, the percentage of buyers who had family acting as guarantors was 4.9%, representing an increase of a full 1% since 2015.
Given current conditions, John Flavell, CEO of Mortgage Choice, said this increase was to be expected.
“This slight jump in demand for home loan guarantors is unsurprising when you consider that property prices have risen fairly substantially across most property markets over the past few years. Many first home buyers are finding it difficult to put a foot on the property ladder without some form of financial support,” Flavell said.
These figures represent one in 20 buyers using a guarantor, wherein a lender is granted permission to take out a mortgage over a property owned by the guarantor, in addition to the borrower’s own property.
Under this arrangement a lender gets additional security on the loan, while the borrower gets access to a loan they might not ordinarily qualify for, through the guarantor’s financial support.
Guarantors can later request to be released from their responsibility, once the buyer has generated adequate equity in their purchased property.
“By having a family member go guarantor on a home loan, first home buyers are not only able to get their foot on the property ladder sooner rather than later, but they can also potentially avoid paying Lenders Mortgage Insurance,” Flavell said.
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