Guarantors and Family Loans

Family

In the current market, it has become harder for first home buyers to get a mortgage.  Lenders almost always require a 20% deposit. Your parents can help by topping up your deposit or they can act as a guarantor.

Deposits

Parents can gift you a deposit, but often they will want to avoid the tax implications if the amount is over $27,000 (or $54,000 for a couple.) The deposit can be done as either a gift or as a Deed of Debt. We will send you a Deed of Debt template that you can use with your mortgage application. The easiest option is for your parents to lend you a 5% to 20% deposit, interest-free for five years. We can always structure your mortgage to pay off your parents within the first five years.

Guarantor

Your parents may not have enough cash available to do a cash deposit in which case, if they own property, going on to your mortgage as a guarantor is another option. The essential thing to understand is that you are using part of the equity in the guarantor's property as additional security for your loan. By using a guarantor the need for a 20% deposit is replaced with a 20% guarantee that is secured against the guarantor's property. We have written a one-page PDF (targeted at parents) explaining the different options that we can use and what it means to them. You can download it here:

The Bank of Mum and Dad