Article by Shantelle Santos
The property market has become more and more competitive (and expensive) over the years and affordability has become a big obstacle for young adults looking to buy into it.
It goes without saying that parents have been more inclined to help their children into the property market by assisting as much as they can. This can be done in many ways, such as allowing kids to stay at home rent-free until they’ve saved up enough money for a deposit, offering some funds to support them, or even going guarantor on a loan. You might be asking, “what does being a guarantor mean and how do I become one?” Here’s a short summary.
Being a guarantor essentially means that the equity built up over the years from a property (like the family home) can be used as security towards all or part of your child’s mortgage. Going guarantor also means parents are able to contribute money to assist in paying off said loan. But like anything, there are things to take into consideration before taking a leap.
Be Aware of Finances
Before agreeing to be a guarantor, Parents should take into consideration all of the possible issues that could arise if things go awry. If the monthly repayments can not be made by the mortgage holder, there is a possibility that parents (the guarantors) may be forced to pay the mortgage. To ensure that a guarantor is covered if a situation like this were to happen, ensure a) that by signing on the dotted line you take on this risk and b) you are capable and have enough money to do so should this happen. Guarantors should also take into consideration potential interest that might be attributed to the initial cost of the loan repayments as well.
It is probably wise to seek some legal and financial advice before agreeing to something unquestionably life-changing. It will be beneficial in the long run knowing all the ins and outs of what you are about to commit to and it is also something that may be required depending on the lenders.
It Could Stop You From Getting a Loan
Asking for a loan in the future could be problematic. If you are a guarantor to your child's mortgage, you are a higher risk. This could discourage them from giving you a loan (should you require one) despit the current loan being repaid.
To avoid any conflict between you and your child, set boundaries before signing the papers. Discuss with them if they have the ability to be financially responsible and set up a specific amount that you will attribute to the mortgage rather than an unlimited amount.
Therefore, it goes without question that if proper precautions are made and all the risks are acknowledged and discussed between you and your child, being a guarantor for your child’s mortgage could give them the head start they need in life. And what more would you want than to see your child fulfilling their goals!
If you have any questions or would like to learn more about being a guarantor as a parent, then don’t hesitate to get in touch with one of our friendly sales consultants today.