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CBA Takes Risk With Family Planning
Commonwealth Bank
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As more parents are wanting to give their children a lift onto the property ladder, banks are finding ways to muscle in on the action.
Commonwealth Bank, for example, is offering Family Equity as a solution to enable parents to help their children start owning their own homes.
Family Equity allows children of homeowners to borrow a larger amount than what they would have been able to without their family's support, by borrowing against the equity of the family home. With Family Equity, parents act as guarantors for their children and can provide security support, help with repayments or a combination of both.
The temptation of Family Equity is that it allows children to buy a home on a mortgage with a guarantee taken on their parents' property, so the children can benefit from the first home owners grant and reduced stamp duty.
The downside? If the loan is defaulted on at any point, the family's home may be put as risk, so the family would bear the brunt of any financial problems that arise on the way.
CBA claim that using Family Equity can help borrowers to enjoy a "sense of independence and financial security" that comes with having purchased their own property. While this may be true for some borrowers, others may not feel very independent having achieved the purchase of their own home at the risk of their family home.
Before committing to this type of product, parents should check that their children are able to afford to service the loan before putting their own equity on the line.
The fine print on CBA's website states that whilst the loan is marketed as Family Equity, the loan documentation will show the name of the loan as the name of the home loan product selected. So in a nutshell, Family Equity is a way of encouraging children of homeowners, who may have previously felt that the property ladder was out of their reach, to join the home loan market.
Rising house prices may make parents and children alike feel hurried in their quest for property, but it is advisable that any borrower builds up as much as possible in savings before applying for a home loan, and takes the time to find the right financial solution for their needs.
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