Buying a house with your parents as guarantors
Mum and dad might have had to walk 10 miles to school barefoot in the snow uphill both ways, but they were also born in a time when buying a home was a fair bit easier than it is today (in terms of average wages compared to average house prices).
In addition, as homeowners, your parents have probably enjoyed superb capital gains over the years and – even if they’re still paying off their mortgage – are likely sitting a on a pretty piece of equity that could be used as financial leverage to help you purchase your first home.
How does it work?
A guarantor agreement can be a savvy way to secure a home loan if you’re coming up short on the deposit even after tapping into the HomeStart grant and other similar initiatives.
While details of the contract will vary, this arrangement essentially means that the guarantor agrees to pay off part (in some situations, all) of your mortgage amount should you happen to default on your debt for any reason. In most cases, your guarantor’s property will act as collateral.
What are the risks involved?
As you might imagine, there are some substantial risks involved for the guarantor under this arrangement. After all, if you fail to fulfil your financial obligations, your parents will be the ones responsible for paying off your loan, and could even face the possibility of losing their property to the bank.
Thankfully, there are a number of things you can do to minimise the risks, such as obtaining limited liability protection, taking out insurance and setting up the loan so that the guarantors’ portion is paid back first. This can be a fairly nuanced process, and the contract will be unique to your specific circumstances, so the best thing to do is get in touch with one of our partnered mortgage advisers who will be able to guide you in the right direction.
