Parents in debt for first-home buyers

YOUNG home buyers are tapping their parents and grandparents for extra money and loans as first-home buyer grants are reduced in several states.

Credit and loan experts are preparing for a jump in requests by adult children for help buying a home but are warning of the dangers for parents if the loan defaults.

The managing director of 1300HomeLoan, John Kolenda, has predicted a resurgence in parent-equity home loans as several state-based grants are wound back.

"Mortgage equity home loans have become steadily more common in recent years as housing affordability has deteriorated and that is likely to snowball as various state governments reduce their support,'' Kolenda says.

"These loans have many benefits including allowing children to avoid expensive lender's mortgage insurance.''

However, credit agency MyCRA chief executive Graham Doessel says the trend could result in parents taking on their children's debt and a bad credit rating.

"A possible rise in parent-equity loans is a dangerous trend. If the loan falls into arrears, parents would be liable, forcing them to work much longer than anticipated to pay off the debts that impact their own credit rating,'' he says.

"Many people go guarantor for their children without assessing the risks to their own finances.

"By far and away the most important question parents need to be asking is: `Could we make the repayments on this loan should our child be unable to?' If there is any doubt of this, it may be best not to guarantee the loan.''

Resi Mortgage Corporation chief executive Lisa Montgomery says parents and grandparents need to realise the debt can last 25 years.

"There is no doubt that some parents fail to fully assess the implications of going guarantor or raising equity to assist their children, in particular the impact on their ability to borrow funds to support their own lifestyle,'' Montgomery says.

"Parents . . . often overlook the loan term, usually it's for 25 or 30 years.''

Source: http://www.dailytelegraph.com.au/realestate/investing/parents-in-debt-for-first-home-buyers/story-fndctfxy-1226519536264