Affordability issues have borrowers turning to mum and dad

Heritage Bank head of broker distribution Michael Trencher told Mortgage Business that the bank's Family Guarantee policy product has been "the single largest area for growth for us over the past few months".

He explained that the Family Guarantee allows parents or siblings to offer the equity accrued in their property as security to assist children or siblings in their entry to the market. "I think its popularity, particularly in the larger states (such as New South Wales and Victoria), stems from rising house prices and the inability of first home buyers to enter the market.

"The added benefit of using additional equity is when their loan-to-value ratio (LVR) is at 80 per cent or below the savings on mortgage insurance can, in some cases, be tens of thousands of dollars. This is very evident in the larger states where the bigger the loan size, the bigger mortgage insurance premium."

Another non-major, ME Bank, also recently pointed to symptoms supporting the notion of a housing affordability "dilemma". ME Bank has seen applications for cosmetic renovation loans nearly double (48 per cent) in six months, and structural renovation loan applications grow in frequency by 25 per cent. 

Patrick Nolan, head of home loans at ME, said: "While many home owners are still relocating, it is clear many are choosing to stay put to avoid the high house prices and expenses such as stamp duty.”

Additionally, research from the Financial Planning Association of Australia revealed last week that 80 per cent of working-age Australians are stressed about their financial situation. 

Mr Trencher said that the benefit of government incentives designed to help first home buyers and curb both domestic and foreign investment also depends on property prices and loan sizes.

"Those schemes are designed to help people get into the market; however, how effective they are will vary in different markets.

"They will help, however. I still think there's a demand for family pooling of equity such as our Family Guarantee offers and, given the current market prices, this structure will be around for a while yet. We are [not] seeing any diminishing of this offering at all."

LVR changes

Heritage Bank announced on 25 August that effective that day, the maximum LVR for all new investment lending will be 80 per cent.

[Related: FHBs at ‘pointy end’ of affordability problems: Westpac]