A buyer’s agent has revealed the clever way young Australians can get into the property market without having to save a cent for a deposit.
Melbourne-based Ella Cas, 24, admitted her biggest mistake when buying her first home was not using a guarantor loan.
A guarantor is someone, usually a close family member, who helps you secure a home loan by agreeing to use their property as security for your mortgage.
Ms Cas, who works for Mecca Property Group, used the entirety of her $80,000 savings as a deposit to purchase her first property, but now advises her clients to consider guarantor loans instead.
‘If I could do it again I would hold onto my cash,’ she told Daily Mail Australia.
‘That was my life savings and instead I could have used my mum’s house for the guarantor loan and held onto the money to invest in shares or buy a second property.’
Ms Cas said there was stigma around guarantor loans due to the risks involved.
‘With your parents as guarantor their house is the security for the loan so there is some stigma around it as people think it’s slightly unsafe due to that risk,’ she said.
Buyers agent Ella Cas says her biggest mistake when buying her first home was not using a guarantor loan
‘However, in my opinion, it is simply the best way to get into the market as a young person and the best way to help your son or daughter to get into the market.
‘I have clients that are in their twenties, they’ve got a full-time job, they’re earning $100,000 and they have a borrowing capacity of $500,000, which is a good borrowing power.
‘But, the majority of 25-year-olds, with the cost of living can’t save a 20 per cent deposit. Who is saving that money these days? No one.’
For a $500,000 property, a buyer would need $100,000 for a 20 per cent deposit.
Ms Cas explained buyers who take out guarantor loans are able to refinance and release their parents as guarantors when the value of their property increases.
She said it’s ‘very important’ to choose a location with a strong rental yield and a focus on capital growth for a first time investor.
The buyer’s agent pointed out that although buyers don’t need a deposit for a guarantor loan, they do need to be mindful of upfront costs such as stamp duty, and be sure they can service the loan.
Although this is a popular option for younger buyers, Ms Cas said she has a client in his 50s who recently used his mum as a guarantor.
Ms Cas said it’s ‘very important’ for first time investors to choose a location with a strong rental yield and a focus on capital growth
The divorcee sold his properties and wanted to get back into the market while still holding onto his cash.
‘If you do it right it’s the best way to do it,’ she said.
Mortgage broker Bill Childs, 28, who now owns eight properties across two states, also wishes he had used a guarantor loan for his first property at the age of 21.
‘When I started buying properties myself I saved for deposits and used equity on my own properties to buy more,’ he told Daily Mail Australia.
‘But, if I look back my dad had property with equity so I could have used him as a guarantor and I wish I had because it would have helped me. A lot of people are worried some will say you’ve had a handout if you do it this way but people say that anyway if you’re successful.
‘Parents want to help their children into the property market and I do see parents give their children cash but that takes away from their retirement so this is a better option.’
Mr Childs said using a guarantor loan is a great way to start a property portfolio as you can save a potential deposit for your second investment property.
Mortgage broker Bill Childs (pictured with his girlfriend) also wished he had used a guarantor loan for his first property at the age of 21
‘If you’ve borrowed the maximum that you can, make sure you’re not in a situation where you’re stressed on repayments, which are going to be higher because your loan is higher,’ he warned.
He also warned that buyers can get into ‘trouble’ if they buy in a ‘risky market’.
‘If you buy somewhere risky like a mining town and your property goes down in value, you’re stuck and that’s where it can go wrong,’ he said.
