Keeping Generation Rent in the buying game

Price of entry into Australia's property market is four times the annual household income with this disparity having the greatest impact on first home buyers.

Recent ABS statistics indicate that first home buyers now make up only 11.8% of buyers, where just five years ago, they made up 24.7%. It's little wonder why young people are lingering in their parents nest for longer or choosing to rent.

So there's never been a more important time for first home buyers to get the right financial guidance. Generation Rent and want-to-be property buyers need to understand their options as early as possible. And in our professional roles, I believe it's important we encourage them to seek advice.

The market has changed in recent years so people's buying strategy also needs to adapt. Saving for a 20% deposit will always be the ideal scenario but these days it's rarely possible and some first timers aren't even looking into other possibilities for buying.

A guarantor home loan is one way first home buyers can get into the increasingly competitive real estate market. It allows a family member (usually a parent) to provide security for a first home buyer using the equity they've accumulated in their own property. Essentially, this equity can be used to borrow up to 107% of the purchase price of a home, all without a deposit.

A guarantor home loan not only reduces the need for a large deposit but also helps avoid Lender's Mortgage Insurance (LMI). If someone wants to borrow a high percentage of a property's value (generally over 80%) they're normally required to pay LMI. This is insurance paid for by the buyer but protects the lender if the loan repayments aren't met and the sale of the property doesn't cover the outstanding loan balance. With a family member acting as a guarantor this insurance is waived, saving the buyer thousands or even tens of thousands of dollars.

Putting up your property to be a guarantor can be intimidating without the right information. It's important to get the facts and keep the guarantor protected so their assets are safe. I can talk families through the process and demonstrate how the loan can be structured so the first home buyer can pay off the guaranteed amount and release the guarantor as quickly as possible.