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Lenders to pursue parents who guaranteed mortgages

THOUSANDS of parents of mortgage holders are expected to be chased down by banks after they signed up to guarantee their adult children's home loans.

It has been estimated that guarantor loans account for around 5pc of the 400,000 estimated mortgages granted during the boom years. Most were guaranteed by parents, but a smaller portion of loans were stood over by friends, bosses or extended family members.

Industry sources say that the banks have already started contacting guarantors of loans in arrears with regard to making them pay up to make good on their original promises. Failure by borrowers to make good on their loans has resulted in guarantors being pursued instead for outstanding amounts.

Boom

Because these homebuyers' financial capacities to repay were already stretched in the cash-rich years by virtue of needing a guarantor, it is likely that proportionally more than 5pc of these loans feature among the 94,800 estimated owner-occupier mortgages currently in arrears of 90 days or more.

It is believed that somewhere in the order of 2,000 to 5,000 loans which are currently in arrears have guarantor agreements attached.

Michael Dowling of Abacus Finance, a former head of the Independent Mortgage Advisers' Federation (IMAF), said: "Now that the banks have been given the go-ahead to pursue arrears properly, they will be looking into every channel available to them which permits them to get their money back. These will absolutely include pursuing the original guarantors.

"In fact, there's a good chance that they will be going straight to parents because they know that older people take debt far more seriously and are more likely to pay up out of their savings."

Karl Deeter, of Irish Mortgage Brokers and Advisers, believes the numbers of affected loans with guarantors attached would more likely be in excess of 2,000, but adds that this number would not account for additional loans which were the subject of a lien on a parent's bank account.

Savings

"The sad thing here is a person in their 30s who is caught in negative equity has a chance of getting back on their feet again, but senior parents in their 60s and above will probably not be able to recoup their savings. Many parents made guarantees in times when it seemed that nothing could go wrong. Now many of them look likely to have to shell out."

Parental guarantees became popular during the final years of the boom when property prices stretched even above what two normal incomes could afford.

Parents would often step in and give an undertaking to guarantee amounts between the maximum loan total applicable and the price of the property.

While it was rare for guarantors to stand over the entire amount of the mortgage loan, standing over loan proportions of between €50,000 and €100,000 was common in the case of around one in 20 mortgages granted in 2005 and 2006.

Irish Independent