Greater Bank: First home buyers can borrow up to 110% with family pledge loan
Article by Kelly Emmerton
In an increasingly competitive property market where even getting a foot in the door can be a struggle, young Aussies looking to buy their first home may find an opportunity with family guarantee home loans, like Greater Bank’s new family pledge loan.
According to the ABS, first home buyers in Australia - originally thought to be 14.1% of the market - actually represented only 13.2% of home buyers in July 2016.
Record low interest rates are a “double whammy problem” for first home buyers, according to Greater Bank lending manager, Chris Baguley, who said low rates are pushing up housing prices, and making it hard for young buyers to save a deposit.
But now, first home buyers are turning toward their parents for help in buying property and taking up offers such as Greater Bank’s new family pledge loan.
Allan Shaw and Ashley Wilton from Maitland, both 23, are among the couples who have finally entered the property market, thanks to Shaw’s parents, Deb and Don.
“We were saving but just not getting there fast enough and then we spoke to Chris who suggested the family pledge loan,” Shaw said.
At first, the couple were hesitant about the idea. “I didn’t want my parents who have worked hard to pay off their home to feel like they were going back under,” Shaw said.
“When I found out that once we pay back a certain amount their security is removed it made it even easier to ask them for help.”
The family pledge loan allows young borrowers to use the equity in a family member’s home as security on a set portion of their own mortgage. Baguley, who also used a family pledge loan to buy a property, said home buyers can borrow up to 110% of the purchase price, but will need to demonstrate the ability to meet monthly repayments.
For a $700,000 property, that would mean a potential loan amount of $770,000. To secure this amount, with an interest rate of 3.89% on a 30 year home loan, borrowers would need to meet monthly repayments of $3,627, according to our home loan repayments calculator.
“The advantage of the loan is that it reduces the required deposit, so borrowers avoid the need for Lenders Mortgage Insurance and are able to take advantage of discounted rates,” Baguley said.
“There are many advantages to this type of financing but people should always talk to a lender to make sure this sort of loan is the right one for their needs,” he added.
First time borrowers can also get in touch with Mozo’s resident home loan negotiator, who can help borrowers secure the best home loan deal for them, completely free of charge.
Those buyers looking to enter the property market and happy to take charge of the process themselves, can compare first home loans in our handy comparison table.