Guarantor Loans (Borrowing 100%) Does this still exist?

Have been doing a bit of research on guarantor loans as my parents brought it up with my spouse and I recently. They have two properties paid in full with one being an investment.

We have been looking at purchasing in the range of 300-350K. I have recently started in a very secure job and my partner is in quite a secure job as well, combined we earn 150K before tax, so servicing the loan wouldn't be an issue.

My question is do 100% guarantor loans still exist or is this a thing of the past?

 

They're still very much an active offering - but the lenders product offerings are wildly different.

Some will allow you to access 100% of the purchase price and costs (stamp duty etc), whereas others will not even allow the 100% of purchase price component.

Get specific advice from a broker who can guide you on the best options in terms of lender and structure - whilst looking at your long term strategy.

 

Are you referring to your parent providing a family pleadge loan to the new purchase?

Either way it is a similar structure of cross collateralised loan where you combine the asset value of the new purchase and one of your parent's property to bring up the total asset value more than 100% of the purchase cost so you borrow 100% plus cost for the new purchase.

But since the new purchase is under all 4 names you save yourself the extra gov Stamp duty on gurantor loan and a simply joint loan over 4 people will do.

 

Macquarie do something like this not sure if you have to have a relationship banker though - ours was on the condition we pay off 20 percent over 18 months.

 

That's very strange and doesn't sound anything like a family pledge loan. Sounds more like a personal loan.

Almost every mainstream lender can accommodate a family pledge loan. They do tend to have different policies in how they can be implemented so what works with one lender may not work with another.

My picks for these arrangements tend to me St George/BOM and sometimes ANZ, simply because they don't require the guarantor to demonstrate affordability of the debt on an ongoing basis. ANZ takes guarantees from anyone (not just family members) and second mortgage behind other lenders.

CBA and NAB require the guarantor to show servicing, which can eliminate deals where the parents don't have a lot of income.

 

The folks helped me with my first IP. I got 105% (H+L plus costs and a buffer) through ST George.

The only thing is now I am trying to find a way to temove the guarantee in order to stand up investing on my own. I.e. tap into equity and duplicate, etc. Ive been told I need to bring the loan down to 80% or possibly higher with LMI

 

Cem you have your property valued - if it is at 80% LVR or lower the parents property can be discharged and the loan is now supported solely by your IP.

Else you can pay LMI to release it up to 90% LVR, or even if 80% LVR then pay LMI and release equity to purchase another property.

 

ANZ also do this. I have my fathers's house as guarantor, I think from my last discussion with the bank it was about 125k of his property.

I'm in the process of removing him now, since my valuation has increased..

 

ANZ by far have the most flexible guarantor policy. Income verification of guarantors is not required, no rigid LVR restriction on guarantee amount (it's possible to roll in a refinance of other debts into the purchase) etc.

Interest rate isn't the most competitive, but it allows people to purchase with a lot of out of norm situations that most others would not touch.

 

What has been the process of removing your father as guarantor? What conditions did you need in place prior in order to do so?

 

There are 2 types of guarantee
1. income for servicing
2. additional property for security

Security guarantees are still ok, but using someone else's income to help servicing is not - unless it is a spouse. A way around this is often to have the person on title, with a small ownership percentage. Later they can be removed - and CGT and stamp duty triggered in small amounts.

but there are a whole host of new issues to consider here so seek legal advice.

 

Bank ordered valuation. As my loan was then <80% i signed a discharge form and released dad as guarantor. Wasnt much to it. No other conditions im aware of

 

At that point did they have to do a reassessment to confirm that you could service the loan by yourself?

 

I initiated the process, as i wanted to remove dad from the loan - just for personal reasons.
I rang the ANZ lender i had dealt with previously in getting the loan and asked what was required. She just said that she would arrange a valuation and go from there. Once that came back, the lender emailed me some forms to sign and thats it.

 

As Terry pointed out in a previous post, banks don't allow parental gaurantees for servicing purposes. This hasn't existed since 2011. There are exceptions for related entities such as trusts, but for all general purposes only equity guarantees are allowed.

The trigger for this is very simply. If the property value has increased or the total lending reduced to the point where there's an LVR or 80% or less, you can remove the guarantee very easily, just a few signatures.

It can be done at 90% LVR but that requires a full loan application due to the LMI involvement.

 

FFB from what I know about your situation, this is not the same or similar.

 

Thanks Terry. Yes, you're right.