The rapid increase in house prices over recent years has turned the dream of buying a home into a mirage for many young people. At the same time, many parents have found that their own homes have increased in value way beyond their expectations.

This has given rise to Family Equity Mortgages. These allow parents or other relatives to use the equity in their homes to assist family members purchase a home. 

The basic requirements are:

• the borrower must be able to meet the loan repayments;
  
  
• the parent or family member providing the equity must guarantee a portion of the loan with either income, security (eg. a mortgage on their home), or both, according to circumstances.
  

The borrower can then select the home they wish to purchase and apply for a home loan. If it’s their first home they are still eligible to receive the First Home Owner Grant.  A Family Equity Mortgage negates the need to pay high Mortgage Insurance premiums. The savings on premiums can be applied to repaying the loan more quickly.

If this appeals to you, and your children have savings of 5% of the purchase price, then your guarantee may be limited to 20% of the loan. If they don’t have sufficient savings this can be provided from your home equity.

Once the borrower has achieved 10% equity in the home, the loan can be taken over in their own name, releasing you from the guarantee.

Regardless of whether you’re the family member providing the equity, or you’re the borrower, there are many financial implications involved in this type of arrangement.  Before you do anything, book a free initial appointment with an IFFP planner. They will help you choose the best course of action for everyone involved.