Housing affordability in Australia is amongst the worst in the world with Sydney having the unenviable status of being ranked second worst.
Strong price growth over the past two years decreased affordability and rising interest rates will apply more pressure in the short term.
If your children are looking to purchase a property, chances are they won’t have the magic 20% deposit plus costs to avoid mortgage insurance.
One solution is for parents to provide an equity guarantee. This requires the funding bank to hold a first or second mortgage over a property owned by the parents which has sufficient equity available for the children to use in lieu of saving the 20% plus costs.
It’s important to note parents cannot support their children’s application from an income perspective. They need to demonstrate they can afford to service the debt from their income.
If a parent provides an equity guarantee generally the loans will be split into two. One loan will be in the childrens’ name for 80% of the property price and the second loan will be for the shortfall and will be in the names of the children and parents jointly. This allows the parents obligation to be limited to the second loan only allowing for potential discharge in a quicker manner.
If you are open to the idea of assisting your children, this is a strategy that might be of interest. We are happy to understand to discuss your circumstances and see if this option may work for you.
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