As lending rates are at a record low, the market becomes achievable and enticing for the first homebuyer. While the incentives provided by the Government certainly make for an attractive offer for the young purchaser, they also increase the pressure on families to help their kids acquire their first home.
Enter the mum & dad bank.
Wealthy parents or those who have ample amounts of equity in their homes provided funds for deposits or, guaranteed loans for their children under a family pledge agreement, to help get them into the property market in the past. However, regulators have toughened up lending conditions to minimise the risk of jeopardizing the financial situations of both the kids and the parents.
The increasing unemployment rate has added to the diminished views of lenders on financing to the younger market with family assistance.
The recent government Homebuilder grant (worth $25,000) and individual state incentives for first homebuyers have helped to reignite the interest of lenders– particularly in Sydney and Melbourne, extending an olive branch back to the idea of mum and dad being able to help the kids to purchase property.
HomeBuilder provides eligible owner-occupiers (including first homebuyers) with a grant of $25,000 to build a new home or substantially renovate an existing home. This means new homebuyers have more options than before to use government assistance, to get their first property.
While this is great news, it comes with conditions to protect the financial interests of both parties.
Here are some key aspects to consider however:
- Financial situation of you and your kids: If you are in good shape from an employment and income perspective, and your kids are working full time then now may be a great time to consider getting into the property market with the use of a family pledge.
A family pledge is a guarantee by mum and dad, with conditions set by each lender. This can assist in avoiding extra costs, for instance Lenders Mortgage Insurance.
- Tougher lending conditions: Lenders have conditions that are more stringent in place for loans, especially those that they consider high risk – which includes the younger market. It is important to do your research to make sure you select a lender that can offer not only the kids, but also the guarantors the best deal.
- Deposit: You need to consider what kind of offer to make to the kids. You could decide to use the equity in your home or, cash to pay the deposit on the new property. Check how much percent is required for the loan, to enable the best interest rate and what your liability will be to the loan.
CAAA Commercial Concierge offer the services of a personal banker. If you are thinking of helping your kids, or a family member to get into the property market speak to your Concierge today.