Acting as guarantor

A family member has asked me to act as guarantor. I'm very keen to do all I can to help. They are unable to get a mortgage themselves. He , his wife and 1 child have been paying rent of 800 per month for the past 5 years. They hope to purchase a property for E150000 and have a deposit of E20000. Therefore I need to guarantee 130000. I realize that people will say-'well if the bank won't give them a mortgage either should you?'. However my 2 questions are

1) If it goes belly up and I'm left carrying the can do i have the right to sell the house to pay off the debt?(or can this be arranged in a legal agreement beforehand). If so I'm happy as I believe that the property is unliekly to fall much more in value and may in fact increase.

2) Will this limit me in terms of applying for another mortgage myself?

Many thanks
NBC

Has the bank agreed to lend if they can get a guarantor or is this a theoretical question?

I understood that the banks were no longer lending on the basis of guarantees as so many people have failed to honour their guarantees.

You are giving a guarantee to the lender. The relationship is between you and the lender. You have no rights over the property, unless you do a separate agreement with the borrower. And it's virtually impossible and very expensive to repossess a home in Ireland, so you should not rely on it.

I don't think that any other lender will know that you have given the guarantee. I don't think that they ask you on the mortgage application form.

If the guaranteed loan goes wrong, and the lender gets a judgment against you , your credit rating will be ruined.

Can you lend them the money instead of guranteeing the loan? That limits your loss.

Wearing my banking hat, I fully agree with the advice given by BB. A guarantee is not a reference or a character rating. It is a commitment to a loan exposure over which you have no control. The only scenarios where I would recommend a client to give a guarantte is for a son/daughter, where you are effectively accepting that you have both the ability and willingness to pay up, if they cannot meet the repayments or if you are borrowing under a company name for a business. In all other circusstances avoid them!!

,

Thanks Brendan for you usual concise and to the point answer.
I don't have cash to lend.
I'm actually unsure if the bank would accept me as guarantor. Maybe you can tell me if I expand on situation.
PPR 50% LTV still owed Total value 200k
Investment 1) LTV 60% total value 200k
investment 2) Mortgage free Value 235k
Investment 3) LTV 80% value 80k
Investment 4) A problem - -ve equite Mortgage 300k value 160 K - tracker int only mort 500 pcm- rent 1000pcm
I moved to UK 3 yrs ago due to lack of work here and have been earning 100k per year. Since arriving I've paid off mortge on no 2(40k to clear- 5% int rate) and have cleared my credit cards(25K at 18%). Apart from mortgages am now debt free.
44Brendan- it's my nephew not my son,
Would a bank accept me as guarantor based on above?
nbc

Hi nbc

I just don't think that banks are using guarantors anymore, irrespective of their standing. I may be wrong.

Brendan

.

Thanks Brendan,
I will suss out and will post here to clarify situation. Others may be interested.
nbc

You're very exposed to property, and your figures are quite hard to understand, can you put up mortgage amounts for each please.

I advise against going guarantor for your nephew as if everything goes pear shaped the relationships can be irreparable damaged.

But if you are going to do it, then if he can easily repay 800 Euro a month now, would that be enough for a mortgage. Has he been careful with money. No bad history there, forgiving youthful foolishness?

Why doesn't his parents go guarantor? Why not her parents? Or their siblings?

Why you?

Why is he unable to get a mortgage?

That's just some of the questions you need to think about.

,

Thanks Bronte
Both parents income would be poor although his parents mortgage is paid off. I don't know if a bank would be happy to have them as guarantors- as Brendan said they would find it difficult to shift them from the house.
She works in academia at a university and isn't on a full time contract. He is a graphic designer but is out of full time work. He does small jobs here and there. Both sensible and have never had a problem getting the rent together. They also have had the opportunity to receive social welfare in the past but have refused to accept it! They have paid 50k in rent in the past 5 years. They live in galway and can source a house for 120k-150k. to me it makes sense to pay into a mortgage if they can.
Regarding my figures I realise I'm over-exposed. Have had posts here previously about it.You asked for figures-

PPR 50% Value 200k Outstanding mort 105k 1100pcm 0.95% tracker
Investment 1) value 200k Mort 125000 1200pcm 4.5%
investment 2) Mortgage free Value 235k
Investment 3) value 80k mort 65k 650pcm 4.5%
Investment 4) A problem - -ve equity Mortgage 300k value 160 K - tracker int only mort 1.2% 500 pcm- rent 1000pcm

I'm worried about no 4 if int rates rise. As a co-incidence I was onto my ppr mortgage provider this am and they are happy for me to extend term by 2 yrs not affecting tracker which would free up 200 a month and I was considering putting this into one of the 4.5% mortgages. Not sure if this will make much difference but it should make a little.
nbc

Why are they being refused a mortgage?

Galway property prices have stabilised, and it's actually a market (as it Cork) so shouldn't be a problem with a bank. If everything went wrong, you'd easily rent for 700 to 800 ( 3 bed in the city). And the price sounds fine too. So going guarantor wouldn't carry a lot of risk in this regard. All good. If you said Leitrim/Cavan etc it would be a different story.

Yes it's a good idea to pay down the higher rate mortgages, BUT, tax ! You'll have to run the figures.

I would imagine they can't get a mortgage as she is on contract and he does not have full time work which, most banks would not like that scenario.

I'd agree with the last two posts. In general the only guarantor loans I've seen agreed since the boom are ones where (a) the applicants themselves are pretty close to qualifying for the loan on their own and have good prospects that their income will increase over the next few years, e.g. recently-qualified doctor etc., and/or (b) the guarantor has serious disposable income of their own, after paying all their own commitments such that the guarantor could pay the new mortgage repayments if called upon without breaking a sweat. I don't think either of these scenarios apply here so I think this is a non-runner.

food for thought

Thanks guys. Will take all these comments on board. Appreciate the help.
Nbc

As far as I am aware any guarantee would not be limited to €130,000. It would include any unpaid interest and charges. In the event of things going wrong these would mount up very quickly.

As an alternative could you release some equity in the unmortgaged property.