The new borrowing playbook: what buyers need to know before turning to alternative finance

Alternative financing arrangements can absolutely help buyers bridge the gap in a difficult lending environment. However, they come with additional costs, risks, and legal considerations. Industry-specific expertise matters in property transactions, explains Attwood Marshall Lawyers Property and Commercial Law Senior Associate, Tobie Mitchell, with insights from YAG Principal Mortgage Broker, Tyler Cornish.

In a tightening lending environment, buyers are increasingly turning to alternative financing solutions to bridge the gap between what a bank will lend and what a property actually costs.

These arrangements can help buyers enter the property market, but they also involve risks, time pressure, and additional legal issues that all parties need to be aware of.

As prices rise and borrowing becomes more complex, having the right professional guidance matters more than ever.

A new reality for buyers

Traditional lending on its own is no longer getting buyers across the line. Banks are taking a far more conservative approach to serviceability, and with interest rates continuing to rise, borrowing capacity is tightening.

At the same time, the overall cost of buying continues to climb, not just the purchase price, but also insurance, transfer duty, and the general expenses associated with property ownership.

This combination is pushing buyers to explore new ways of “topping up” borrowing power. Buyers are leaning on family support, co‑ownership arrangements, asset‑backed lending strategies, and refinancing existing facilities to complete their purchase.

The difference between a smooth settlement and a highly stressful one often comes down to planning these arrangements well in advance and understanding the legal and financial consequences of each step by seeking advice from lawyers and brokers.

Good advice early on can prevent issues that might otherwise jeopardise a purchase, delay settlement, or cause family conflict later.

Family loans

More buyers are turning to parents or relatives for financial help, often in the form of loans to boost their deposit. It sounds simple, but without obtaining advice or properly drafting an agreement, these arrangements can unravel quickly.

A family loan changes the legal and financial position of everyone involved. If the buyer can’t make repayments, or if a relationship breaks down, parents can find themselves unsecured and exposed.

Taking security (such as a second mortgage or caveat) brings its own considerations. Lenders may require consent, subordination, or priority agreements, which can slow down financing approval, increase costs and put more pressure on the borrower.

The terms can be formalised in a legally enforceable agreement that reflects what the parties intended from the beginning. With clear expectations and properly informed consent, it’s far easier to manage any potential conflicts that arise later on. Early advice protects relationships just as much as it protects financial positions.

Parental guarantees

A parental guarantee remains one of the most effective ways to increase borrowing capacity. But it is also one of the most misunderstood.

Guarantors can easily overlook the risks of signing a mortgage over their own property, and that they may be asked to sign complex lender documentation that exposes them to enforcement action.

Independent legal advice has become mandatory for guarantors, and banks have strict requirements for timing and certification.

Where these transactions go wrong is timing. If parents only learn about the guarantee towards the end of the process, which oftentimes is a week or two before settlement, they can be placed in a high‑pressure position with little time to obtain advice. Worse still, delays in obtaining the necessary legal certifications can jeopardise settlement entirely.

A well‑prepared buyer engages these issues early on, so parents aren’t put in a difficult position without first having time to understand the full scope of their obligations long before signing a guarantee and indemnity in favour of the lender.

Co‑ownership

Siblings, friends and partners are increasingly teaming up to purchase property together.

Co‑ownership can work well, but it creates legal relationships that many people don’t appreciate until something goes wrong.

Loan repayment contributions may not always be equal. Without a clear agreement, those differences can create unintended rights in equity. If one party becomes bankrupt, the other may find themselves dealing with complicated legal issues. If a family member has lent money to help one party only, that loan may be unsecured and rank behind the bank and behind the co‑owner’s interest.

A well‑drafted co‑ownership agreement sets out how much each side contributes and what happens if someone wants to exit the arrangement, dies, enters insolvency or a dispute arises. It also sets out how a property can be sold, giving everyone certainty and protecting relationships.

Leveraging other assets

Some buyers are turning to asset‑backed loans, margin loans, equity releases or refinancing existing properties to free up cash.

Used well, these strategies can provide a meaningful boost in borrowing power. However, they also come with practical implications buyers need to consider:

• Cross‑collateralisation can limit future refinance options or require the sale of multiple assets to exit a loan.
• Margin loans can trigger forced sales if the market shifts.
• Additional mortgages or caveats can delay settlement if lender consent is required.

These are not “set and forget” facilities. They need to be structured carefully.