Bank lending requirements are making it harder for first-home buyers to use their parent’s help to get into the property ladder, says one mortgage lender.
Peer-to-peer lender Southern Cross Partners chief executive officer Luke Jackson said, unlike before, asset wealth is no longer good enough for mainstream financiers.
While it is still possible, Jackson noted it is not easy. He highlighted current practice by banks, wherein their auto-decisioning software wants to know that the parents (or whoever is repaying the loan) have the income to service the mortgage is something goes wrong.
He also outlined some ways banks are approaching the problem. One is that banks require parents and the children to enter the mortgage as co-borrowers, wherein parents put up the security, and the kids make the repayments. Another option is asking the parents to raise the deposit by borrowing against their property.
“The result is that we have a couple who have worked hard all their lives – and are getting to a point where they can consider retiring on what they have built – when suddenly they find themselves in debt again for a significant amount of money. The children will pay – most of the time – but there is still the risk factor because life happens,” Jackson said.
“Previously, all parents needed to do was provide a guarantee against their assets – even for a second sibling – and the debt would still be all in the children’s names.”
The lack of wealth transfer products and the failure of banks to consider applications on a more personal, case-by-case basis (even when the deal makes sense from a commercial decision perspective), was contributing to a boom for non-bank lenders, he added.