Astute East Brisbane's Finance Insights

Drawing on his industry experience, Tony Duncan shares his thoughts on industry changes, home loan requirements and a number of important areas to consider when planning your first home purchase or your next property investment. 

  • Tony Duncan

Here's how to "Guarantee" your first home

Updated: Oct 3


It must seem impossible for our first home buyer’s to get on the property ladder these days. The strength of the Brisbane property market certainly bodes well for a seller but less so for a buyer and the changes to government incentives now mean a buyer requires even more of a deposit than they did 12 months ago.


If you are a buyer with a low deposit, a Guarantor may be the answer!


Here's a recent success story:

Katie*, at 31 years of age was looking to buy her first home. She’d gone along to a few open homes to test the market and was feeling deflated that the homes she wanted were out of her price range. She only had $60 000 saved which seemed well short of what she would need for a deposit on a property. Based on a suggestion from a friend she rang us to talk through her options.


Here's what we learnt:

1. Katie was a registered nurse and earned a good consistent income. 2. Her repayment capacity was enough to support the required lending and more. 3. Katie’s parents owned a home with a mortgage and were willing to help however they could.


What we proposed...

Katie’s parents would provide a Security Guarantee to supplement the deposit she had. Under a family guarantee, the parents utilise the equity in their home to use as security to a buyer's loan. The person providing the security is known as a Guarantor. In this scenario, they don’t need to give Katie or the lender any money, they accept the obligations associated with entering into a guarantee. In this case, it means, the parents/guarantor supply the guarantee and Katie repays the mortgage.


How did it work out?

If a buyer needs to borrow more than 80% of the property value, Lenders Mortgage Insurance (LMI) is Required. LMI protects the lender if the buyer was unable to continue their lending obligations. If LMI is required, the applicant pays the premium, it’s important to note that LMI doesn’t provide the applicant with protection – it’s there for the lender's protection.


When a Security Guarantor is available, the buyer can borrow the remaining 20% plus costs against the guarantor's property such as Katie’s parent's property. In this case, Katie wanted to keep the loan as low as possible, so she contributed her savings, and her parents were able to 'go guarantor' on the remaining deposit. Generally speaking, once equity has been built sufficiently in the property to reach 20%, the buyer and their guarantor can apply to the lender to release the guarantor from their obligations and remove the guarantee. Because of strong property growth over the last 12 months, Katie’s parents had accumulated a large amount of equity in their home. Katie’s parents’ home had an existing mortgage but there was still enough equity to provide the required guarantor support.

Katie was delighted with this news. Before long she found a great little property which she was proud to call her own and we were pleased to have been able to help her along the way.

If you are a potential buyer or know one who might benefit from a discussion with a mortgage broker regarding a Security Guarantee, please give the Astute East Brisbane team a call and we'll do the rest. Reach out anytime and we'll be happy to help.

 

*Names have been changed to protect client privacy.


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General Advice Warning: This communication contains general information only and in no way constitutes the provision of professional advice, nor should it be relied on as a substitute for financial, credit, accounting, legal or other professional advice. We have not taken into account your financial situation, investment objectives or particular needs. Before making an investment or financial decision, a person must seek appropriate independent professional advice and also consider whether this information is appropriate to their needs, objectives and circumstances. The author as well as their representatives, agents and employees give no guarantees and make no representations, express or implied, as to the accuracy, currency, completeness or suitability of the information contained in this document. Nor do they accept any liability whatsoever as a result of any information herein being incorrect, incomplete or unsuitable or as a result of a person in any way using or relying on the information herein.

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