Home Help

There are many ways parents can give their children a leg-up but there are also traps to avoid

- Nicola Field

The property market downturn has been a gift for first-time buyers. Home values nationally have fallen 7% over the past 12 months but in our most expensive cities, Sydney and Melbourne, they have dipped by 11% and 10% respectively

That’s giving first homeowners some real buying power. But a helping hand can still be essential to get a foot on the property ladder, and there are plenty of ways parents can get involved.

Know the basics

As a first timer, a key rule of thumb is to understand where you stand in terms of your buying power at an early stage. It may not be necessary, for example, to have a 20% deposit.

“These days no lenders offer no-deposit loans. But there are some that may accept just a 2%-5% deposit,” says James Symond, chief executive of mortgage broker Aussie.

Among the cheapest home loans in Money’s 2019 Best of the Best awards, a number of lenders, including Move Bank and Easy Street, accept deposits as low as 5%. And many lenders will let you use the First Home Owner Grant as part of your deposit.

However, there is a catch. While low-deposit loans can be the gateway to buying a place of your own sooner, Symond cautions that with anything less than a 20% deposit, first home buyers will have to pay lenders mortgage insurance (LMI).

This is a one-off cost – your lender will organise cover, so you don’t have to shop around. However, the real sticking point is that LMI protects the lender, not the home buyer, if you can’t keep up the repayments. So it’s definitely an expense worth minimising.