Buying a property is part of the Australian dream but with the current market prices, this dream seems unachievable for first home buyers. Over the past five years Sydney property prices have risen to a shocking 70%. As of 2017, the median house price in Sydney suburbs is now valued at $1.15 million. The property prices are affecting all of Australia. Also Melbourne has seen a 7.4 per cent increase in median house prices.
When looking at the Hills District in particular, investors are faced with a seven figure median house price. With the funding of new schools, shopping precincts and parklands – the area is highly sort after, forcing prices to skyrocket. Rouse Hill alone has jumped 32% in just one year. With the record breaking price increases in Australia, it is important to explore alternative options.
Have you considered buying property with as little as NO deposit?
When it comes to buying an investment property speak to an expert broker who can help you explore achievable financing options. Call Marco Scannone at Stars Broking Service today on 0405 252 808 to explore your options.
Those struggling to break into the property market have many options available. Let’s explore these options below:
- Security guarantor or Family pledge loan
This option is referred to as a ‘no deposit home loan’ as it allows potential buyers to purchase a property with the support of a family member. This is done by securing the deposit shortfall to a property owned by the guarantor, such as your parents or a close family member. Parental guarantees have increased 1.9% in recent years. In 2016 6.7% of new loans were in the form of a family pledge loan compared to 4.8% in 2010. Family guarantee loans have changed in recent years as parents are now no longer required to put the entire house up for security. Banks will take guarantee of parent’s property for a limited amount.
Opting for this financing solution has many benefits:
- Reduces the time you need to save
- Removes the costs of mortgage insurance which can add up to $20,000 or $30,000 depending on the size of the loan. Mortgage insurance is payable when the amount you are borrowing is more than 80% of the cost to buy your new home.
- No additional costs
To better understand family pledge loans let’s look at an example of buying a property valued at $500,000. Normally a savings of at least $100,000 deposit is required, plus stamp duty and legal costs. Now let’s say your parents or family member have a property worth $750,000 which they own outright. The bank will take security for $100,000 (20%) over the parent’s property and will take security for $400,000 over the property you would like to purchase. You will still need to be able to service the entire loan of $500,000 but in this case you won’t need to come up with the 20% deposit upfront. The benefit is that with a Security Guarantor loan you do not need to pay mortgage insurance saving you $16,000. The amount your family/parents guaranteed is $100,000 only. It is important to highlight that not all Family members/parents which have Equity in their property can go Guarantors on a loan. There are several requirements and each Lender’s policy differs. To find out more call Marco Scannone today.
Alternatively another option when buying a property is a ‘deposit bond’.
- Deposit bond
A deposit bond acts as cash substitute and can be used when exchanging contracts. It is a useful option when looking to buy a property and you are unable to immediately produce a 10% deposit or you simply don’t want to use your own savings. The product is especially convenient for investors who may have funds tied up in non-liquid assets or want to maximise their borrowings without having to contribute a cash deposit. There are many options when it comes to deposit bonds. The benefits of using deposit bonds include:
- Efficient and easy way to finance a deposit for a property
- Cheaper alternative to bridging finance
- Maximise interest earned on savings as no cash is required upfront when a deposit bond is used.
- Deposit amount is fixed and therefore can be used at multiple auctions.
To better understand A Deposit Bond consider this as an Insurance Bond. It is a promise to pay Certificate Issued by an insurance company on your behalf. An example of how it might be used by an investor could be an off the plan purchase with 18 months completion. On signing the contract the buyer is required to pay a 10% deposit and then the balance after 18 months once the property is registered. If the contract price is $700,000, you will need to pay $70,000 cash. Provided you have equity in an existing property as security for the bond, instead of the $70,000 cash you could hand over a Deposit Bond which would cost you $3,045. Once the property is then completed you will be required to proceed to settlement handing over the entire $700,000. The Bond would allow you to invest your $70,000 elsewhere during these 18 months or alternatively in a growing market could allow you to speculate on your purchase selling the property to another buyer prior to settlement.
- Cross Securitisation
Finally the option of ‘cross securitisation’ allows investors to buy a property without a deposit. Cross securitisation is when a lender uses prior owned properties as collateral. Equity from the existing Home is used to secure an additional credit to acquire a new property. This is a common technique used by new property investors. However, having your loans cross securitised restricts the ownership you have of each property. This will restrict your ability to sell, as the bank will conduct a revaluation of all properties in your investment portfolio. This option is only available for those with existing properties.
Explore further options today, call Marco Scannone on 0405 252 808 or visit the website www.starsbroking.com.au