Parental Guarantees come in to play when you, or perhaps you and your partner, wish to buy a home but don’t have sufficient deposit however your parents are prepared to assist.

What this means is that the lender will take a mortgage over the property you are purchasing and in addition also take some security over your parents home.

Sounds simple but it is important to fully appreciate what is involved from a risk point of view for you and most importantly your parents.

If we look at a worst case scenario and assume that for whatever reason you can’t make the payments on your loan then we are starting to get in to a serious risk scenario. If finally you manage to sell your property and there is a shortfall between the amount of the debt and the net sale price after agents fees etc then the lender will look to your parents to recover their loss.

Scary isn’t it but at Symes Financial Solutions, we have ways of at least minimizing any possible damage by examining the different lenders policies on Guarantees.

For example one lender might simply take a mortgage on your parents property with no stipulation as to the amount whereas another lender might be comfortable in limiting the exposure of your parents liability.

It is also worth noting than some lenders will require your parents to get independent legal advice with regard to their guarantee whilst others will ask for a statutory declaration that you have sought such advice.

For example let’s say you have made an offer on a property with a purchase price of $500,000 and you need a parental guarantee. Lender A takes a mortgage on your parents property without stipulating an amount but Lender B is prepared to limit the Guarantee to 20% of the purchase price; in this case $100,000. From your parents point of view, and I am sure your point of view, Lender B sounds a more attractive proposition.

It’s our job to find which lender suits you best