Despite ongoing challenges with housing affordability, owning a home remains an important milestone for many first home buyers in Australia. While the path to home ownership may not always be straightforward, there are some things that can speed up the process. Read on as we explore three ways first home buyers can get into the property market sooner, including leveraging the Bank of Mum and Dad, accessing assistance from State Governments, and buying with family or friends.
Bank of Mum and Dad
Over the past two decades, the number of young Australians receiving financial support from family or friends has doubled, leading the Productivity Commission to suggest the “Bank of Mum and Dad” would rank amongst Australia’s largest mortgage lenders if it were an official bank!
While this trend may be helpful for first home buyers in speeding up the home buying process, it does raise concerns around the long-term implications for the parents providing financial support. Before deciding to provide financial assistance, it’s important to carefully assess any future financial risk.
Getting financial support from family or friends allows first home buyers immediate access to necessary funds – either via help with a deposit or as a guarantee to a home loan - so they can get into the market sooner and avoid paying Lenders Mortgage Insurance (LMI).
Family or friends can provide a:
- Gifted deposit: Parents or family members may gift funds to help cover part of the deposit required when buying a first home.
- Family guarantee: As guarantor, parents may use the equity in their own property as security for the home loan. But if the borrower defaults, the guarantor is required to repay the loan and could be at risk of losing their own property.
Assistance from State Governments
Across Australia, State Governments provide a range of grants and schemes aimed at helping first home buyers get into the property market, with financial incentives and support to make home ownership more attainable.
Along with alleviating the high costs of buying a home, these schemes can be a real game-changer for individuals and families on lower incomes or those struggling to save a large enough deposit.
As grants and schemes vary across different states, it's important to carefully review eligibility criteria and get financial advice to determine which options may be available to you.
Grants or incentives available to eligible first home buyers include:
- First Home Owner Grant: A one-off payment to help offset the cost of buying a home, amounts vary from state to state.
- First Home Guarantee: Guarantees part of a home loan so first home buyers can buy a home with as little as 5% deposit without paying LMI.
- Stamp Duty Concessions: Discounts or exemptions on stamp duty with amounts and eligibility criteria varying from state to state.
- Shared Equity Schemes: Help to Buy provides an equity contribution of up to 40% for new homes and 30% for existing homes.
Buying with Family or Friends
Co-buying a property by pooling resources with family or friends is another way to boost purchasing power and get into the property market sooner. It involves combining incomes and savings to increase borrowing capacity, while at the same time sharing the burden of mortgage repayments and ongoing expenses.
For many first home buyers and solo buyers, co-buying offers a real solution to housing affordability and owning a home becomes a viable option. However, because of the legal implications of shared ownership agreements, and the potential for ruining relationships, it’s vital you seek financial advice and know what pitfalls to avoid, to make co-buying work.
Co-buying may be accessed in the following ways:
- Joint ownership: Buying a property with one or more friends or family members and sharing ownership and responsibilities.
- Tenants in common: Each buyer owns a specific share of the property, which can be divided unequally based on individual contributions.
- Co-borrowing: Applying for a joint home loan, with all parties listed as borrowers and jointly responsible for mortgage repayments.
The right support from Mortgage Express
Getting into the property market as a first home buyer in Australia can be challenging, but with the right support on your side, it's achievable.
If you're considering buying your first home and would like help exploring lending options, contact a Mortgage Express mortgage broker today. Our experienced brokers specialise in helping first home buyers navigate the complexities of the property market and can provide personalised mortgage advice tailored to your individual needs and circumstances.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
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