Increasing FHB reliance on parents

“This is up from 3.9 per cent in 2015 and 3.8 per cent in 2014,” Mortgage Choice chief executive officer John Flavell said. 
 
“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.”
 
According to data from CoreLogic, property prices across the combined capital cities rose 8.3 per cent over the last financial year, with Sydney and Melbourne increasing fastest.
 
“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 Mr Flavell. 

Indeed, the annual survey revealed that 64.4 per cent of first home buyers who purchased within the last 24 months would have bought sooner if they had received more financial assistance.

However, Mr Flavell appeared to support the concept, saying that “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”.
 
He added: “As property price growth continues to outpace wage growth, it is becoming harder and harder for first time buyers to save the deposit they need in order to purchase property.
 
“By having a guarantor, first home buyers can (in most instances) borrow the full purchase price and sometimes even the costs associated with purchasing property.” 

Mr Flavell continued: “After a first home buyer builds up equity in their property, their guarantor can ask to be released from the loan.
 
“Provided the first home buyer can comfortably make their regular mortgage repayments, there is very little risk associated with this type of financial assistance. As such, I would expect to see continued growth in the proportion of first home buyers using guarantors.” 

Although parents have long supported their children financially, the increasing reliance on large-scale support of this kind has caused some concern recently, with a survey conducted by ME Bank finding that 28 per cent of respondents who have financially helped a family member buy a home within the past five years said their assistance has affected their level of comfort in retirement, up from 21 per cent of those who provided financial assistance more than five years ago. 

The survey also revealed that the amount being loaned or gifted between family members to buy property has increased from $27,000 on average, prior to the past five years, to $42,000 on average within the past five years.

ME Bank, head of home loans Patrick Nolan said the results of the survey provide more proof of the significant impact high house prices are having on Australian consumers.

“That a significant number of Australians are receiving and giving financial assistance to buy a first home, and that an increasing number of givers are doing so at the expense of their retirement, is further evidence of the challenges of house prices, which have risen steeply over the last few decades,” he said.

“It’s becoming increasingly difficult for parents and grandparents to help family members buy a first home while protecting their own retirement plans.”

[Related: More FHBs fear home loans out of reach]