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Financial Planning Disputes

Family Guarantor Loans: How Lenders Put You at Risk

Parents want to see their children achieve success and happiness. For some, this can mean owning a home or running a successful small business. Unfortunately, home ownership can seem like an impossible dream in the Sydney property market, with exorbitant house prices requiring large deposits and sizeable mortgages. With today’s median house price of $980,000, a first home buyer will require almost $100,000 in savings to cover a 5% deposit and upfront fees. For the Sydneysider who earns an annual salary of $80,000, it can take years to save this amount of money.

Therefore, more than 50% of first-home buyers receive financial assistance from their parents. In fact, to help their children enter the housing market, some parents act as guarantors on a loan. This means that they use the equity in their own home as security against the mortgage. “Going guarantor” on a loan can put both the homeowner and their parents at considerable financial risk.

If the borrower does not make the required repayments, the guarantor is legally responsible for repaying the loan and any additional fees. Unfortunately, the guarantor may lose their own home, or any other assets against which the loan was secured. This can have dire financial and interpersonal consequences.

A similar situation can arise when parents act as guarantors on business loans, and sadly, there are numerous cases in which older Australian’s have lost their homes after their loved-one’s business has failed. This situation was most recently highlighted at the Banking Royal Commission, with the practices of financial lending institutions brought under scrutiny. Some of these practices include pre-witnessing documents, providing false information on loan applications and offering poor financial advice. Ultimately, it is apparent that lending institutions and banks are engaging in practices that place parents in extremely risky financial situations.

If you are considering acting as a guarantor on a home or business loan, it is essential that you seek both financial and legal advice. Importantly, you must never allow either a family member or loan manager to pressure or force you into signing any loan documents.

If you have signed loan documents and you believe that you did so without full knowledge or understanding of what you were signing, seek legal advice immediately. If your family-member fails to make repayments and the lender moves to acquire your assets, you may challenge this if you:

  • Did not receive legal advice prior to signing the documents
  • Suffered from a disability or mental illness when you signed the documents
  • Felt pressured or coerced into signing the loan documents
  • Were misinformed or not made aware of the nature of, and risks involved in the loan
  • Believe that the lending institution or bank misled you or used unethical, unfair or dishonest tactics

If a bank or lending institution has acquired your assets, including your family home, and if you believe that illegal, fraudulent, unfair or unethical practices were involved, you may be able to seek compensation. Taking legal steps to reclaim your future and financial security can seem overwhelming, so it is important that you seek thorough and personal legal advice.

If you would like more information about seeking compensation for financial malpractice or lender misconduct please contact us today to speak with one of our compensation lawyers.

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