October 17, 2016
Most first home buyers are afraid to ask their parents for help with the purchase of a property.
According to Mortgage Choice's annual First Home Buyer survey, 59.7% of respondents said they would not consider asking their parents to go guarantor on their home loan.
Mortgage Choice chief executive officer John Flavell said there are a myriad of reasons why first home buyers may not be comfortable asking their parents for financial assistance.
“One reason why first home buyers may be reluctant to ask their parents for assistance in purchasing a property is because they don't understand what guarantor loans are and how they work,” Mr Flavell said.
“While guarantor loans have been around for a while, they have only enjoyed a surge in popularity in recent times. As such, many first home buyers may not even be aware that guarantor loans exist.
“In addition, some first home buyers may feel as though they need to be able to prove they can buy a home on their own and don't want to burden their parents by asking them to go guarantor on their loan.”
Across the states, Victoria boasted the highest proportion of first home buyers who admitted they wouldn't ask their parents for assistance.
“Nearly 65% of Victorian-based first home buyers said they would not consider asking their parents to go guarantor on their loan,” Mr Flavell said.
He added that with home prices rising month after month, many first home buyers were finding it increasingly difficult to get their foot onto the property ladder without some form of financial assistance.
According to data from CoreLogic, property prices have risen substantially over the last few years, with dwelling values climbing 7.1% across the combined capital cities over the last 12 months alone.
“Not only are property prices rising across most capital cities, but all of the states have now removed the first home buyer grant for those wishing to purchase an established dwelling,” Mr Flavell said.
“From our data, we understand that more than 80% of first home buyers will look to purchase an established dwelling, meaning the vast majority of first timers will not receive any type of government financial incentive.
“With that in mind, there are plenty of reasons why a first home buyer may need financial assistance from their family.
“And while it is clear the majority of first home buyers are uncomfortable about asking a parent to go guarantor on their loan, there is a lot of benefits associated with this type of loan structure.
“A guarantor can not only help first home buyers get their foot on the property ladder sooner rather than later, but they can also help them to avoid paying potentially costly Lenders Mortgage Insurance.”
But while the benefits are clear, Mr Flavell said there are also some risks that both first home buyers and guarantors need to be wary of.
“If the mortgage holder can't meet their debt obligations for some reason, the guarantor is financially responsible for the loan – which is something both parties need to be aware of before signing on the dotted line,” he said.
Mr Flavell said it was important for the first home buyer and parent to speak to a mortgage professional to ensure both parties are comfortable with their obligations and responsibilities.