Are you considering going Guarantor for your child?

The Pit Falls of Conveyancing

Your son or daughter have asked you to guarantee their loan so they can buy their first ever home. Of course you want to help them get into the market, but what does it really mean for you?

You are agreeing to pay that guaranteed amount plus any other charges or costs set out in the terms of the guarantee in the event that your child defaults under their loan.

Generally, your guarantee is secured which means you will be required to enter into a mortgage with the bank. This mortgage may be over your family home.

We often see many parents saying that they are only doing it for a short period of time, but there are a lot of variables, including ones outside of your child’s control, that may mean the security is held for many years which may impact you or your future plans.

If you agree going guarantor, things you might want to consider are:

With your child:

1. Ensuring your child has the appropriate insurances in place so they will be able to repay the loan at all times (income protection or life insurance) and your guarantee will not be called upon;

2. Talking to them about putting a Will in place (or updating it) to include a provision that you are to be released as a condition where the property is to be given to another person under their Will.

With the bank:

3. Are there other options rather than securing your family home or having another property potentially tied up for some years.

Most lenders will require you to receive independent legal advice prior to agreeing to going as guarantor however sometimes it is too late by then and your child’s settlement will be held up, or worse they will be in breach of their contract as funds won’t be provided by the bank if you fail to sign the guarantee.

It is worth knowing exactly what you are liable for and talking to the bank about alternatives before it is too late.

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