Parents warned falling house prices could trap loan guarantors

Summarised from 2 outlets · Updated 23 Oct, 00:51 · Archive

Australian parents who guarantee their children's home loans could remain liable for up to 13.5 years if house prices fall and fail to recover.

Parents who guarantee their children's home loans could remain liable for up to 13.5 years if house prices fall without recovering, according to Primara Research. A guarantor is normally released from a loan once the balance falls to 80 per cent of the property's value, but falling prices extend this period significantly.

House prices have already fallen 3.3 per cent from their peak over six straight months, driven by rising interest rates and tax changes. Forecasts predict a further 10 per cent national fall over the next year, which would lock guarantors in for 9.9 years. If prices do not grow after such a fall, the period extends to 13.5 years. Peter Drennan, Primara's head of research, said many parents were unprepared for declining prices. 'Parents have not normally been in a situation where property prices have declined as much as they are predicted to fall,' he said. 'It is very difficult for them to be prepared when all they've seen is property prices rise.'

The timeline varies dramatically with market recovery. If house prices recover at the long-term average of 4.8 per cent a year, guarantors would be released in 4.6 years. If the post-Covid growth rate of 8.2 per cent a year returned, they would be released in just 3.1 years.

How it is being reported

• Australian parents warned falling house prices could trap loan guarantors for 14 yearsThe bank of mum and dad are being warned of the massive financial hole that falling house prices could put them in.Perth Now · 23 Oct, 00:20
• Australian parents warned falling house prices could trap loan guarantors for 14 yearsThe bank of mum and dad are being warned of the massive financial hole that falling house prices could put them in.The West Australian · 23 Oct, 00:20

In this story: Australia · Primara Research · REA Group · Peter Drennan

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