First-Time Home Buyers Turn to Family for Loans

As the Australian housing market becomes increasingly harder to afford for most first-time home buyers, an upturn in family loan help has begun.

According to Michael Trencher, the head of broker distribution at Heritage Bank, their largest growth area over the past few months in within the financial institution’s Family Guarantee policy products.

The Family Guarantee policy provides siblings or parents to use their accrued equity in their property to help a child or sibling secure a loan by offering their home as security. Mr. Trencher thinks this growth has much to do with the rise costs of housing, affordability issues for first-time home buyers. Therefore, they turn to their parents and family for help.

Another benefit of this family equity loan program is the LVR (loan-to-value), which is 80 per cent or less, provides lower mortgage insurance costs. In larger states, where loan sizes are bigger, so are the mortgage insurance premiums.

ME Bank, a non-major financial institution, is seeing a rise in applications for home renovations, which is also indicative of affordability issues in the housing market. These applications have almost doubled in the past six months. The head of home loans at ME, Patrick Nolan says that “While many home owners are still relocating, it is clear many are choosing to stay put to avoid the high house prices and expenses such as stamp duty.”

The Financial Planning Association of Australia’s research unveiled that 80 per cent of Australia’s working-age population feel stress regarding their financial situation.

Michael Trencher explained that the benefit of the government incentives are designed to assist first-time home buyers, while curbing the foreign and domestic investment sectors that rely on loan sizes and property prices.

Even though these schemes are supposed to help people get into the housing market, the effect will differ from market-to-market across the country.

It appears that the push for family housing equity pooling isn’t diminishing any time soon and will be around for quite some time.

Finally, Heritage Bank said the maximum LVR for all new lending for investments will stay at 80 per cent for now.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

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