Guaranteeing a mortgage for others, family or not, can be fraught with danger. Anyone considering that should get sound financial advice before signing on the dotted line.
Some of the points to consider:
(1) Is the guarantee for a fixed period or for the term of the loan?
(2) Is the guarantee for a fixed amount or all encompassing?
(3) At what point will the guarantee be allowed to lapse?
(4) Is the guarantee joint or several?
If you don’t know or what to find out more contact us for advice.
First-home buyers use parents as guarantors
Twice as many Wellington first-home buyers are using parents as guarantors for mortgages since a tougher deposit criterion was introduced last October, according to a Wellington mortgage broker. \
The latest monthly property values, issued yesterday, highlighted major challenges for the capital's first-home buyers because few city properties had a price tag under $400,000.
That put many homes beyond their reach thanks to the 20 per cent deposit cap imposed by the Reserve Bank last October.
"We are seeing some first-home buyers finding ways around the caps, for instance by getting parental guarantees," QV Wellington registered valuer Kerry Buckeridge said.
Wellington mortgage broker Craig Pope agreed, saying first-home buyers were forced to be "creative" about meeting bank criteria to get a mortgage.
About one in 10 of his clients used family as guarantors for their mortgages, double the number relying on that help before the Reserve Bank introduced the tougher loan-to-value ratios.
However, he believed the biggest change had been increasing numbers of people using KiwiSaver to augment their deposit - about 60 per cent.
"That has been a massive help for home buyers. As time goes on, more people fit the criteria and can use KiwiSaver to buy a house."
KiwiSaver had two features to assist people buying their first home, including its deposit subsidy and savings withdrawal schemes. Under the deposit subsidy, people could withdraw up to $5000 if they had been in KiwiSaver for more than three years.
Statistics from Housing New Zealand, which managed the subsidy scheme, showed its payouts to first-home buyers had increased exponentially during the past three years.
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