August 31, 2017
First home buyers find it pretty hard to save a deposit nowadays. The carefree days of school over, bills take precedence, things break and need fixing. You have to spend money on things that you don’t want to end and the savings always takes a backseat. It's hard to save at the same pace in which house prices are currently rising. The bottom of the market now is higher. It's high enough that people who want to buy into the market for the first time have to save around $30,000 to make it work.
So, what if the normal way for saving deposit monies is not your style and you can’t meet it? What other things can you do?
So, let’s think about it for a while.
We are finding that guarantors are getting quite popular in the current environment. Good old mum and dad are becoming more and more sources equity for the kids. They are happier to do so now days because of the relaxing of the way that guarantors work. . Guarantor loans are better now because the parent's home allows enough equity. There is no need for deposits. This avoids any mortgage insurance costs, and the need to make up the 20% deposit that’s needed to do so. So, the kids don't need to have a deposit at all unless they want to.
Of course, with any guarantee, the prospect of qualifying for a loan is still hanging over your head. So you still need to have the income available to be able to afford a loan of this size are you are after. You need to be also mindful of the fact that the guarantors will need to pay if something goes wrong with the loan. That is if there is a loss that needs covering. Guarantors are a great way to come up with a deposit.
There is always an option of going halves with somebody else. It could be a friend or a sibling, and sharing the expenses of both the loan and the payments. So, property share loans are also becoming a bit popular at the moment. You still need to have a deposit though. That would be either as a joint deposit, or through one of the parties. It may be a bit easier to save half rather than the whole lot.
What about joining forces altogether, children buying into their parent’s property? It could help the parents out to reduce their debt coming into the retirement years. It can assist the kids to get a foothold into the market and to begin to build some equity. There are stamp duty implications to think through, but it is an option that can help many of people out. Of course, all parties would need to protection. So agreements would need drafting to cater for a ‘what if’ scenario (death, out of work, exit strategy etc)
Want some pointers on how to make it work for your situation - ask us. We're happy to give free advice any time.