As conveyancing lawyers, one topic we are frequently asked to address is when a parent is asked to act as guarantor for their child’s property purchase. Often a bank will ask a parent (or other party) to go guarantor when the property purchaser doesn’t have a sufficient deposit.

While parents do not often want to disappoint their children, this is not without huge risks to them as guarantor.

Guarantors stand to lose the secured property that forms part of the guarantee (which is usually the family home) if their child defaulted under their mortgage. There are many circumstances outside of the children’s control (e.g. illness, workplace accident, loss of employment or relationship breakdown) which could lead to a default under their mortgage which forced the guarantee to be called in. Banks are also under no obligation to sell the mortgaged property before they sell the secured property – i.e. if they think mum and dad’s property is going to be easier to sell, they can usually sell it before they try to sell the child’s property.

Although banks require a guarantor to obtain independent legal advice before they are legally bound to the guarantee, serious thought must be given to acting as a guarantor before the application for finance is even made in the first place.

This post is general information only. It is not a substitute for legal advice from a lawyer. If you have a legal issue, you should always contact your lawyer to obtain advice that is relevant to your circumstances.