People keen to enter the real estate market are trying to overcome tighter lending restrictions by drawing on the equity in a family property to secure a home loan, according to leading mortgage broker Loan Market Group.

Loan Market Group Executive Director John Kolenda said there had been an increase in inquiries for family equity mortgage options since major banks reduced their maximum loan to valuation ratio (LVR) to 90 per cent in response to the global financial crisis.

Mr Kolenda said family equity options were available to help first home buyers and families entering the residential real estate market.

“They are becoming increasingly popular with people wanting to get into the property market while the boosted First Home Owners Grant of $14,000 for established homes and $21,000 for new dwellings is still available,” he said.

Mr Kolenda said under the family equity guarantor’s support policy, parents or another immediate family member can help with loan servicing and security support.

“The most popular of the family equity options is the limited liability guarantor and we are noticing an increase in inquiries for this since some of the major banks reduced their LVRs to 90 per cent,” Mr Kolenda said.

“Under this option two loans are taken out, one at 80 per cent of the property value, which is secured by the purchaser, and one at the remaining required percentage which is secured by the property of parents or another family member.

“The benefit of this option is there is no requirement for lenders mortgage insurance and no need to show proof of genuine savings required under a 90 per cent LVR.”

Mr Kolenda said parents can be relieved of the equity responsibility once the total loan value reaches less than 80 per cent of the property value.

“But all parties do need to be aware that in the case of a default, the family members are liable for the 20 per cent they secured,” he said.

He said another family equity option known as the income guarantor allowed parents to guarantor loan repayments for their child buying a home or an option that is potentially viable for a couple who have to sacrifice an income while the partner is on maternity leave.

“The parents can guarantee the loan repayments until the mother returns to work,” he said.

“The parents are liable for any repayment that is in default, so it’s not an advisable option for pensioners.”

Mr Kolenda said first home buyers should check with their mortgage broker to ensure they are eligible for the First Home Buyers Grant using family equity for a deposit.