The popularity of parents going guarantor on their children’s loan has risen significantly in recent years, new research has revealed.
According to Mortgage Choice’s annual First Home Buyer survey of 1,057 Australians who purchased their first home within the last two years or are looking to purchase their first property within the next two years, approximately 5% of all first home buyers had a parent or immediate family member go guarantor on their home loan.
There is no doubt that having a guarantor can help reduce the costs of buying a home for first home buyers, but it can also expose family members to financial risk if something goes wrong.
Data from CoreLogic found property prices across the combined capital cities rose 8.3% over the last financial year, with Sydney and Melbourne the standout performers.
“Given that property prices continue to rise month after month, it is little wonder why so many first home buyers are finding it difficult to put a foot on the property ladder without some form of financial support,” said Mortgage Choice chief executive officer John Flavell.
“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.”
CANSTAR research of 98 home loan providers found that 72% of lenders allow for a parent to go as guarantor. Under an arrangement with a parental guarantee borrowers can still borrow up to 100% of the property value.
The Mortgage Choice survey also found that one-third of first home buyers worry about managing their mortgage repayments, in spite of Australia’s currently very-low cash rate and associated home loan rate environment.
“It is quite disconcerting to hear so many first home buyers worry about how they will manage their debt,” Mortgage Choice chief executive officer John Flavell said.
“The reality is, interest rates have never been lower, meaning it should be easier than ever for borrowers to manage their debt.”
Other issues of concern identified by the Mortgage House survey respondents included:
|What is your largest concern about owning a home?||National||NSW||VIC||QLD||SA||WA|
|Not being able to afford repayments||29.2%||30.5%||22.8%||28.2%||22.2%||40.5%|
|The length of time it takes to pay it off||19.8%||22.1%||22.0%||18.4%||18.5%||17.9%|
|The amount of money I will have paid by the end of the loan term||12.9%||8.4%||11.4%||18.4%||14.8%||10.7%|
|Buying the wrong home||10.0%||11.5%||17.1%||9.7%||5.6%||2.4%|
|Being committed to such a large financial obligation for so long||21.3%||22.1%||22.0%||19.4%||27.8%||19.0%|
Source: Mortgage House