We all know entering the Australian property market is challenging for first home buyers due to high housing prices relative to incomes, stricter lending criteria, limited housing supply in desirable areas, and competition from investors. This makes saving for a deposit and securing a mortgage difficult, leading to affordability issues.
In this article we answer some of your questions around how the Bank of Mum & Dad can help their children enter the market for the first time.
What government schemes are available for first home buyers?
Government schemes for first home buyers in Australia include the First Home Owner Grant, which provides a one-time payment for newly built properties, and the First Home Guarantee Scheme, which helps buyers purchase a home with a smaller deposit and avoid paying lender’s mortgage insurance. Some states are also offering stamp duty waivers or concessions for eligible first home buyers.
Will the bank allow me to gift my son or daughter money to buy a home?
Yes, lenders allow parents to gift money to their children for a home purchase by verifying the gift’s source and confirming it as a non-repayable contribution towards the property transaction.
Can I lend my son or daughter the deposit rather than gift it?
Some banks allow parents to lend money to their children for a home purchase by treating it as a loan, with agreed-upon terms. In order to avoid including this loan as a commitment when assessing the borrower’s affordability, it is usually required to be both interest and repayment free, except upon sale of the property.
If I don’t have cash, how can I use the equity in my home?
A security/parental guarantee enables their child to avoid mortgage insurance by providing additional security to the lender. With the parents’ assets backing the loan, the lender perceives less risk, waiving the need for mortgage insurance typically required for loans with lower deposits. The guarantee covers the borrowers’ shortfall in equity, known as a limited guarantee.
How can I use my income to help support repayments on my child’s loan?
To use your income to support your child’s loan, parents typically need at least a 25% ownership interest on title, ensuring their financial involvement is recognized by lenders as a substantial benefit.
Written by Chris Hill
I have been in financial services for 20 years and joined Smartmove in 2014. I enjoy working with such a passionate and dedicated team. Drawing on over 10 years’ experience in mortgage lending I pride myself on offering my customers honest and professional advice and always seek to ensure I meet and exceed customer expectations.
