Personal loans being used to fund mortgages
In the past year there has been a noticeable increase in the number of first time home buyers who have been turning to personal loans and credit cards to fund house deposits.
Personal loans versus personal savings
According to a recent survey conducted by Genworth and presented in their 10th Edition Home Buyer Index, the percentage of buyers who used financial sources other than their savings to fund their property deposit jumped from 47% in 2009 to a surprising 57% in 2014. Other sources include personal loans and credit cards, as stated in the Genworth report: first home buyers who used personal loans to fund deposits increased from 4% to 15% in the five years leading to 2014, while the popularity of credit cards rose from 1% to 10% for the same reason. This shows a trend towards accumulating lower deposits with rising property prices.
Saving for a deposit seems to be the greatest hindrance for first time home buyers and this causes most buyers to turn to other funding sources, hence the increase in buyers who opt to get personal loans or credit cards to cover the cost of the deposit. However, not all first home buyers who opt out of saving for a deposit turn to loans or credit cards; other sources that are mentioned in the Genworth report include gifts from family members and inheritance.
Is it a good time to buy? 52% of homeowners surveyed said yes. Although some people may think that getting a loan to pay for another loan is a disaster waiting to happen but a lot of financial consultants seem to disagree. The Australian economy is on the rebound and has survived the global financial crisis without any scars, and this signals the time to make an investment. Securing personal loans to fund deposits appears to be a sound financial venture at this time. The improving property industry market shows that the first home buyers who invest now will reap the rewards on their investment and the loan will be well worth it. With the promising economic recovery comes lower interest rates and lower level of mortgage stress; this in itself shows that now is indeed a good time to be a first home buyer.