Secured loans jump 71% across Australia in six years: Aussie Home Loans

Secured loans have increased 71% over six years, new figures show, as soaring house price growth prompts more parents to help their children move up the homeownership ladder.

Mum and Dad’s bank has grown prolific in Australia, funding around $ 35 billion in title loans and is now the ninth largest lender in the country.

While many choose to donate large sums of money, parents can also act as guarantors by using the equity in their own home as collateral when their children do not have enough money set aside for the deposit.

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The surge in secured loans occurred from fiscal year 2014-15 to fiscal year 2020-21, according to a new analysis of data from Aussie Home Loans.

While there was an 8% drop between FY 2018-19 and FY 2019-20, likely due to the pandemic, there was a rapid 21% increase in guarantor loans again. between fiscal years 2019-20 and 2020-21.

The increase in this type of parental support is due to the strong growth in house prices in recent years, especially since the boom triggered by the pandemic has taken off, said David Hyman, chief executive of Lendi Group, the parent company of Aussie Home Loans.

“The rate of guarantor involvement has increased reasonably steeply,” Hyman said.

With median home prices approaching $ 1 million in many cities and well above that milestone in Sydney, that trend has only accelerated, he said.

“The result of all of this, especially for first-time home buyers and home improvement companies, is that it is more difficult to own a home. It’s a relatively light-handed way for these buyers to access homeownership, ”he said, adding that a possible macroprudential tightening – or how easy it is to get a home loan – would not solve the problem. not the affordability problem.

“We will continue to see guarantors having a place in the market. You just need to understand that it may take a little longer to release the guarantor or pledge [if property price growth slows],” he said.

The suburbs with the highest number of first-time buyers

State Suburb
New South Wales Belmont, Seven Hills
ACT Gunghalin
CIV Carnegie
QLD Townsville, Bundaberg, Mackay, Upper Mount Gravett, Stones Corner, Moryafield, Newtown
HER Perspective
Washington Bunbury, Geraldton
TAS Launceston

The rise in secured loans, something unheard of two decades ago, was a symptom of Australia’s rapidly deteriorating housing affordability, said Shane Oliver, chief economist of AMP Capital.

“Twenty years ago, we didn’t even talk about mom and dad’s banking, so I think that reflects the problems young people have in entering the housing market given deteriorating affordability,” Dr Oliver said.

“To enter the real estate market in the first place, you have to borrow a large amount of money and you need a large amount for the deposit, which also requires help.”

With first-time homebuyers taking up to seven years and a month to save for an entry-level home in parts of Australia, the time to put up a deposit was bound to fly away as the prices continued to rise, Dr Oliver said. .

“As house prices have become increasingly less affordable, people have found ways to make this possible. It’s built into the system, ”he said.

“What has happened is that people have found low cost and affordable ways to live and that maybe just perpetuates it and government policy has partly gone down that road as well.”

According to Will Unkles, director and mortgage broker at 40Forty, the prevalence of secured loans was undoubtedly increasing, as it was the “next best option” after cash donations.

“Giving funds is very simple and easy because it does not immobilize the family home, but not everyone is [able to], so the next best option is to vouch for the loan, ”Mr. Unkles said.

He cautioned against the risks of secured loans if the property’s value does not increase and the buyer is unable to maintain loan repayments.

“At this point, the bank has a grip on the parents’ property and can call on them if you can’t pay your loan back,” he said. “In a flying market, nobody cares, but there will be a time when property doesn’t grow at the rate it currently is.”

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