Loan guar­an­tor high-risk role

Central Leader - - OPINION -

Go­ing guar­an­tor on a loan is some­thing that would scare the liv­ing heck out of me.

The shock­ing con­se­quences of do­ing it are writ­ten across the bankruptcy list­ings, mort­gagee sale no­tices and court judg­ments.

But un­for­tu­nately we have col­lec­tively so mis­man­aged Auck­land’s hous­ing needs that go­ing guar­an­tor on a home loan seems likely for par­ents like me who want their kids to own a house in the city.

I, for one, am hor­ri­fied by house prices, fail­ing to see it as a good thing that a na­tion’s peo­ple and econ­omy is well-served by a stock of homes young peo­ple can’t af­ford.

But we are crea­tures of our time. We can only deal in the mo­ment. Some gen­er­a­tions have had to cope with wars, some with dis­ease, some with re­pres­sive gen­der and racial prej­u­dice.

For those in their 20s and 30s a mis­match be­tween in­comes and house prices seems the cross they have to bear.

Cross­ing your fin­gers and hold­ing off buy­ing a place in hopes of the Govern­ment (voted in largely by home-own­ing nim­bies) will bring in a raft of change that will give young folk a more re­al­is­tic chance to par­tic­i­pate in our home­own­ing democ­racy hardly feels like an op­tion. So how do you do it? Given how long it can take to even save a de­posit, the an­swer has been to bor­row 90 per cent or more of the ask­ing price from the bank. That’s not go­ing to be so easy in fu­ture as the Re­serve Bank plans to limit the num­ber of such high loan-to-value ra­tio loans banks can is­sue.

Most at­trac­tive of the unattrac­tive op­tions open in such a world is to get mum and dad to guar­an­tee your loan. That way the bank gets its se­cu­rity and can thumb its nose at the Re­serve Bank.

Of course that brings risks to mum and dad, most notably that if the kids don’t make their mort­gage pay­ments, the bank comes knock­ing.

In a night­mare sce­nario, a guar­an­tor could end up los­ing their own home.

In Aus­tralia, banks have all pledged not to do un­lim­ited re­tail guar­an­tees, and good on them. Here, banks con­tinue to use them.

But West­pac may have taken a step that ends that on hous­ing loans. Its new Fam­ily Spring- board mort­gage wheeze al­lows par­ents to guar­an­tee a first mort­gage – say $60,000 – with the sec­ond mort­gage – say $400,000 – en­tirely the re­spon­si­bil­ity of their off­spring.

Cyn­ics might see this as West­pac us­ing fam­ily as a spring­board to mak­ing even more money and to al­low the prop­erty mar­ket band­wagon to roll on un­in­ter­rupted.

But it at least means that should the off­spring stuff up and the house sell for a huge loss at mort­gagee sale, the guar­an­tor knows they will not be up for more than the $60,000. This is the way that guar­an­tees should work.

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