Loan option for first homebuyers

Loan option for first homebuyers

With high property prices providing a challenge for Australian first homebuyers to enter the market -“ especially in major cities such as Sydney, Brisbane and Perth -“ a family equity loan could provide the antidote.

Anecdotal evidence from Mortgage Choice suggests that demand for not-so-traditional mortgages such as family equity mortgages has been noticeably increasing for the past 12 months, especially in major capitals where property values have been hitting record levels.

Mortgage Choice National corporate affairs manager Warren O’Rourke advises first homebuyers not to be disheartened by rising prices and instead explore their options.

Many Australians entering the market for the first time may not be aware of the growing proliferation of loan products such as family equity mortgages, which is where parents act as guarantors for the loan, as well as shared equity, 100 percent and 105 percent loans. These are all available today, he said.

Products such as family equity mortgages are increasingly the choice in areas of dense population or popular coastal cities. These areas also generally experience the majority of joint loans, due to their high property prices and associated living costs.

Data from the Real Estate Institute of Australia for the December 2007 quarter showed the median house price for Brisbane is now $410,000 (up $26,500 on the September quarter), $551,000 in Sydney (up $6,100) and $465,000 in Perth (on par).

Family equity loans are increasing in popularity for a very good reason -“ the housing affordability challenge. Often it is a great way, sometimes the only way, for a homebuyer to enter the market, O’Rourke said.

The findings from a 2007 Mortgage Choice franchisee survey also reflected growing interest in non-traditional loan products, with 34 percent of franchisees having noticed an increase in other categories of joint borrowers (slightly up from 32% in 2006), such as children buying their first property with a family member or even with their friends.

A family equity loan allows the homebuyer to secure their mortgage against the equity in a family member’s property. The latter provides a guarantee in support of the loan application.

So the guarantor is in a position to help the applicant maximise the amount they can borrow, which bridges the deposit and upfront expenses gap, and means the applicant avoids paying lenders mortgage insurance (LMI), which can amount to thousands of dollars.

O’Rourke said it was very important for all parties to consider receiving legal advice before committing to a family equity loan because it is a business deal between family members. And sometimes, even with the best intentions, the borrower can’t afford the repayments due to unforeseen circumstances.

However, in the vast majority of instances the borrower can afford the loan and once they reach a point where they have enough equity in their property, the guarantor can be released from the loan.

Visit the Mortgage Choice website at or call the customer service centre on 13MORTGAGE for more details.

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