Market Update – May 2024
27/05/2024
In your Forties – Invest for Growth
13/06/2024
If you’re considering helping your children with a ‘guarantor home loan,’ you’re not alone.
Property prices keep rising, with the national median price jumping 32.5% between March 2020 and February 2024, according to CoreLogic’s national Home Value Index (HVI). As a result, it’s becoming increasingly common for people in pre-retirement or already retired to help their children enter the property market. Indeed, the ‘Bank of Mum & Dad’ is now one of the largest mortgage lenders in the country.
It may involve providing equity in your home to cover some or all of your child’s deposit so they can buy a home while putting down little or no cash savings, or it might also involve providing a cash deposit.
While going guarantor can be very satisfying, it’s important you enter the arrangement with your eyes wide open and consider these three things:
- Guaranteeing a loan will reduce your borrowing power or deplete your investible funds, which might affect your financial plans.
- You will be held legally liable if your child fails to repay their mortgage. That means you must make the repayments yourself; otherwise, the bank would have a claim to your home to cover the debt. Either way, you put your hard work in jeopardy.
- Have a clear exit strategy – such as your child agreeing to remove you as guarantor in five years after they’ve built up sufficient equity.
Finally, ensure everything is in writing to avoid misunderstandings that might damage your relationship, finances and future.
If you’re considering helping your children buy a property, let’s discuss it.
This is general advice only. Please speak to a licensed professional for personal advice related to your specific situation. If you want expert advice on achieving your goals, speak to Affinity Private Advisors today by calling 1300 769 304, emailing enquiries@affinityprivate.com.au or filling in this online form.
The information contained in this article is current as at 23/04/2024. Any advice or information contained in this report is limited to General Advice for Wholesale clients only.
The information, opinions, estimates and forecasts contained are current at the time of this document and are subject to change without prior notification. This information is not considered a recommendation to purchase, sell or hold any financial product. The information in this document does not take account of your objectives, financial situation or needs. Before acting on this information recipients should consider whether it is appropriate to their situation. We recommend obtaining personal financial, legal and taxation advice before making any financial investment decision. To the extent permitted by law, Affinity Private Advisors does not accept responsibility for errors or misstatements of any nature, irrespective of how these may arise, nor will it be liable for any loss or damage suffered as a result of any reliance on the information included in this document. Past performance is not a reliable indicator of future performance.
This report is based on information obtained from sources believed to be reliable, we do not make any representation or warranty that it is accurate, complete or up to date. Any opinions contained herein are reasonably held at the time of completion and are subject to change without notice.
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