Products
Guarantors Support
1. Description
Guarantor Support is available to assist customers obtain a home loan when they are unable to provide adequate security in cases where the loan amount exceeds normal lending margins; and/or if they are unable to provide adequate servicing (for non-personal borrowers only).
Borrowers may consider adding co-borrowers to their loan application if they do not wish to obtain support from a guarantor
2. Benefits
Guarantor Support enables customers (in particular first home buyers) to:
- Borrow more funds than they may have been eligible for without a guarantee.
- Eliminate the need to pay for Lenders' Mortgage Insurance (LMI) or Low Deposit Premium (LDP) where the guarantee reduces the customer’s Loan Valuation Ratio (LVR) to a level where LMI is not required.
3. Eligibility
To be eligible to provide a guarantee for a residential mortgage, all guarantors to a loan must be one of the following:
- Living in Australia and are:
- An Australian citizen;
- A New Zealand citizen;
- An Australian permanent resident;
- Living and working overseas and are Australian citizens 18 years or older;
- An Australian registered non-trading company; or
- A family, unit, or hybrid trust, where the trustee could be:
- An individual; or
- A company.
- An individual; or
4. Options
The following options are available.
Borrower Type | Types of support |
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Personal Borrower A personal borrower must be able to service the loan amount based on their income and total repayment commitments. Under no circumstances can a guarantee be taken if the borrower is unable to demonstrate servicing in their own right. |
Security support only Subject to the application falling into one of the following scenarios:
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Non-Personal borrower I.e. where the application includes at least one borrower who is a non-trading company or a non-trading company as a trustee of a trust. |
Servicing and/or security support |
5. Family Security Support
Family Security Support makes it possible for customers to get a home loan when they’re unable to provide adequate security to the Bank on their own.
Family members of the borrower, i.e. a parent or guardian, adult child, sibling, or grandparent (it can also be a former spouse or legally appointed guardian) may offer the equity in their property, in addition to the borrower's property being secured by the loan. Other family members (such an aunts/uncles) may only be accepted where approved by Credit.
If approved, the family member guarantees the loan which is supported by the property they are offering as security.
Note: Guarantees for married or de-facto couples are covered below under ‘Spousal Security Support’.
6. Family Security Support isn’t available for:
- Borrowers who do not have an ownership interest in at least one security property supporting the loan unless the purpose of the borrowing provides direct benefit to the security provider (e.g. adult son or daughter borrowing for the purpose of providing aged care for their parents using their parent’s property as security)
- Individual guarantors receiving any type of Government Benefit (pension or payment) as their sole source of income, and using their principal place of residence as security, unless the security is in joint names with the borrower
- Off the plan purchases or loans where foreign income is used for servicing
- Individual guarantors who are not a family member of the borrower/s e.g. friend or neighbour
- Viridian Line of Credit (VLOCs).
- Loan purposes unrelated to the purchase, construction, renovation or refinance (where the original loan purpose was for purchase, construction or renovation) of a property (including personal investment, purchase of a car, personal goods, cash-out (except for where cash is used for the purpose of Renovation, cash out does not need to be bank-controlled), debt consolidation etc.).
- Interest only repayments for the guaranteed loan account only (other than during a construction period).
- Transportable or mobile homes
7. Family Security Support required loan structure
The required loan structure is an 80% / 20% split (plus costs to a maximum of 7%). The maximum loan amount for the guaranteed loan must not exceed 20% plus associated purchase costs to a maximum of 27% of the borrower’s property value. The maximum total lending against the guarantor’s security property must also not exceed 70% of the guarantor’s property value.
An 80 / 20 (plus costs) split is:
- Application 1 is secured by the:
- Borrower's property only (80% of the borrower’s property value); and
- Borrower's property only (80% of the borrower’s property value); and
- Application 2 (the remaining loan amount) is secured by the:
- Borrower's property (20% plus costs to a maximum of 7% of the borrower’s property value); and
- Guarantor's property (total lending including any existing charges must not exceed 70% of the guarantors property value).
- Borrower's property (20% plus costs to a maximum of 7% of the borrower’s property value); and
If the borrower’s property is located in a postcode where LMI is required from a 70% LVR, the required loan structure is a 70% / 20% split (plus costs to a maximum of 7%). Any shortfall in funds must be provided from the borrower’s savings/deposit. See Security Lending Margins and Postcode Lookup Tool.
A 70 / 20 (plus costs) split is:
- Application 1 is secured by the:
- Borrower's property only (70% of the borrower’s property value); and
- Borrower's property only (70% of the borrower’s property value); and
- Application 2 is secured by the:
- Borrower's property (20% plus costs to a maximum of 7% of the borrower’s property value); and
- Guarantor’s property (total lending including any existing charges must not exceed 70% of the guarantor’s property value).
- Borrower's property (20% plus costs to a maximum of 7% of the borrower’s property value); and
Notes:
- Total lending is defined as total existing debt secured by the guarantor property + amount pledged under the proposed guarantee + any existing guarantees secured by the guarantor's property.
- Where the guarantor offers a cash security, the maximum lending margin remains at 100%.
- Variations to Family Security Support loans are subject to the maximum total lending restriction of 70% of the guarantor’s property value where the variation results in an increase in exposure against a guarantor security property (such as where the loan has originally been secured by two guarantor properties and one is to be released).
- Variations to Family Security Support loans that have no detrimental impact to the exposure against a guarantor security property may be exempted from the total lending restriction of 70% where accepted by Credit. For example, where the LVR has increased simply due to a new valuation or where a variation results in a decrease of total lending against the guarantor security property from 80% to 75%.
- Where an existing guarantor who has provided Family Security Support to a family member requests to take out their own new or increased lending, they may do so up to standard lending margins and are not required to cap the lending to 70%.
- Where a Family Security Support loan is refinanced (internal or external), the original purchase costs may be refinanced where they have not yet been repaid.
- Repayments for Family Security Support loans must be on a Principal and Interest basis on the guaranteed loan (i.e. loan which has the guarantor property held as security). Interest Only repayments are not allowed on the guaranteed loan other than during the construction period for construction loans.
8. Example: Purchase
- Sally Smith wants to borrow $300,000 to buy a property (Property A) valued at $285,000 and also to cover the associated purchase costs.
- The Loan to Valuation Ratio (LVR) for this example is 105%, which is outside of acceptable security limits.
- To help Sally get her loan, her parents have agreed to provide to the Bank a mortgage over their property (Property B).
- Property B is valued at $500,000 with a prior CommBank mortgage of $150,000.
Sally's loan structure would be:
Application 1 | Application 2 |
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In this example:
- The loan amount for the guaranteed loan ($72,000) is equal to 25% of the purchase price of the new property ($285,000) inclusive of associate costs which is within the required cap of 27%.
- The total lending against the guarantor’s security property is also within the acceptable limit of 70%. This is calculated as total lending ($150,000 + $72,000 = $222,000) / property value ($500,000) = 44.4%.
Note: any redraw held needs to be considered when calculating total lending against the security value.
9. Example: Top-up
- Omar purchased land for $170,000 last year and is looking to construct a property.
- Omar’s existing loan structure is:
- $140,000 secured by the land; and
- $36,000 secured by the land and his sister’s property.
- $140,000 secured by the land; and
- Omar needs an additional $300,000 to fund the construction of a property (as the land is already owned there are no purchase costs).
- The new property is valued at $500,000 on completion.
- Omar’s sister has offered her property valued at $350,000 as a guarantor security. The property secures an existing debt of $150,000.
The new loan structure will be:
Application 1 | Application 2 |
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In this example:
- The loan amount for the guaranteed loan ($76,000) is equal to 15.2% of the land and build value of the new property ($500,000) which is within the required cap of 20%.
- The total lending against the guarantor’s security property is also within the acceptable limit of 70%. This is calculated as total lending ($150,000 + $76,000 = $226,000) / property value ($350,000) = 64.57%.
10. Spousal Security Support
- Spousal Security Support recognises that ownership structures may differ with spousal relationships and provides flexibility in the application structure to ensure we can meet the needs of our customers.
- Spousal Security Support is available for married or de-facto couples. If approved, the spouse guarantees the loan, which is supported by the property they're offering as security and the guarantor must seek independent legal advice.
- We cover guarantors for Family Security Support, Property Share and Non-Personal Guarantees separately under Guarantor eligibility and conditions.
- Borrow more funds than they may have been eligible for without a security guarantee
- Eliminate the need to pay Lenders Mortgage Insurance (LMI) or Low Deposit Premium (LDP)
- Have repayment flexibility with IO acceptable at origination and in-life for Investment Home Loans only
- Have flexibility in their application structures with no application structure restrictions ie the Family Security Support structure of 80%/20% application split is not required. The application can be structured 50%/50% and even single application structures with one security are acceptable.
Conditions
- We may only approve new and increased loan facilities, if we're satisfied that the borrower:
- Has sufficient income to make repayments;
- Doesn't depend on the guarantor's income to service the loan; and
- Has an ownership interest in the security against the loan.
- Has sufficient income to make repayments;
- Lenders Mortgage Insurance (LMI) and Low Deposit Premium (LDP) is available for Spousal Security Support.
- Legal advice is mandatory for Guarantors in all Spousal Security Support arrangements. You must advise the guarantor of this requirement and they must complete a Statutory Declaration to confirm they have obtained legal advice.
Loan structure
- There is no set required loan structure for Spousal Security Support Guarantees.
- Interest Only repayment type is acceptable at origination and in-life on Investment Home Loans only.
- Lenders Mortgage Insurance is acceptable.
Exclusions
Spousal Security Support isn't available for:
- The guarantor's sole source of income can't be a Government pension or payment when they're using their principal place of residence as security, with the exception of where:
- The principal place of residence being used as security is already owned jointly with the borrower; or
- In the case of joint security guarantors, one of the guarantor's sole source of income isn't a government pension or payment.
- Transportable or mobile home
- Loans where foreign income is used for servicing
11. Guarantees for non-personal borrowers
A non-personal borrower is where at least one borrower is a non-trading company or a non-trading company as a trustee for a trust, where the beneficiaries as per the trust deed are individuals or non-trading entities. Where a non-personal borrower is involved in an application, guarantees are required from company directors and shareholders. Note: A PCAA holder must approve where a guarantee is not taken from a shareholder, with appropriate rationale documented.
Guarantors may provide support to non-personal borrowers in one or both of these ways:
- Security Support: when the non-personal borrower is unable to provide adequate security for the borrowing amount, a guarantor may be willing to provide security to assist.
- Servicing Support: when the non-personal borrower is unable to service the loan amount based on their income and total repayment commitments, a guarantor may be willing to provide income to assist with the loan repayments.
For example:
Guarantor providing servicing support only | Guarantor providing servicing and security support |
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As no security is provided, it's an unsupported guarantee. |
As the guarantee is supported by security, it's a supported guarantee. |
For non-personal borrowers, we may approve new and increased credit facilities if the total ongoing financial commitments (including both new and existing commitments) can be serviced by the:
- Borrower's eligible income; or
- Combined eligible incomes of the (non-personal) borrower and guarantor after allowing both the borrowers' and guarantors' ongoing financial commitments
You must consider the value of any security provided by the guarantor in the calculation of the Loan to Valuation Ratio (LVR) for the application. The security requirements for a guarantor are the same as those for a borrower.
12. Guarantor Checklist
Refer to the Interview Checklist below for required steps and guidance on key points to discuss during the interview. The Banking Code of Practice requires you to take extra care with our customers who may be vulnerable.
Step | Action | |
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1. | Starting the interview:
Note:
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2. | Discuss the risks and explain the key Banking Code of Practice (BCOP) disclosures:
Note:
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Suggested conversation starters:
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3. | Next steps:
Note:
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13. Interview Comments - Examples
See below examples of Guarantor Interview Comments which would be considered acceptable, not acceptable, or considered "too much" information. The below references are a guide only, interview comments should be in your own words and reflect your assessment of the Guarantor’s suitability and circumstances as assessed during the interview.
Acceptable Examples (guide only, do not copy and paste) | Non-compliant examples: | Too much information – Example (information highlighted below is already covered in the Guarantor Declaration / not relevant or not appropriate) |
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Example 1 (Family Security Support):
Example 2 (Property Share):
Example 3 (Family Security Support):
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Example 1 No notes left Example 2 Questions are answered with simple Yes/No Example 3 (doesn’t speak to the minimum standards): BCOP: Guarantor, Co-Borrower Interview co-borrower individually to borrower. Guarantor Guide supplied upon request. Co-Borrower confirm that they will receive substantial benefit. Guarantor Guide supplied upon request. Example 4 (doesn’t speak to minimum standards + indicates interview procedure has not been followed): I interviewed all the guarantors and co-borrowers together, they were fine to proceed and happy. I provided them documents. Example 5 (not in broker's own words): Copy and paste of the examples template |
Example 1:
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14. Guarantor Suitability
The following table should be used as a guide to help you assess if an individual is suitable or not to become a guarantor. If you can answer yes to any of the indicators below then the guarantor is not suitable.
Questions to ask yourself | Indicators |
Does the Guarantor appear to be under duress or are there any signs of financial abuse? |
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Does the Guarantor appear illiterate? |
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Is the Guarantor likely to be put into hardship if the Guarantee was enforced? |
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Does the Guarantor appear incapable of making an informed choice? |
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Has the Guarantors unique circumstances been considered? |
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15. Independent Legal Advice
You must consider if the Guarantor is suitable and/or whether independent legal advice is required: In all cases, you must recommend the Guarantor seek independent legal and financial advice from an independent third party (i.e. not the borrower’s solicitor).
The following Table can be used to help you determine if independent legal advice is required. If you can answer yes to any of the other considerations then the guarantor must seek independent legal advice.
Questions to ask yourself | Indicators |
Does the Guarantor not understand or speak English? |
Note: The broker must obtain the declaration from the guarantor and image to the application. When translator or interpreter services are required please refer to your relevant interpreter services processes or refer to the National Accreditation for Translators and Interpreters Ltd (NAATI) website for more information. |
Is the Guarantor unable to understand the risks and obligations of signing a guarantee? |
Note: this is only applicable to non-personal borrowers. |
Is the Guarantor highly dependent on the borrower? |
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Is there any unique circumstances that should be considered? |
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If independent legal advice is required, a Statutory Declaration for Mortgages (002-421) must be completed and imaged to the application.
16. Loan options
Customers can choose any Home Loan or Investment Home Loan product under a guarantor support arrangement.
17. Lenders Mortgage Insurance (LMI)
LMI is available for security support only where borrowers / guarantors are in one of the following types of relationship:
- Marital
- De facto; or
- company and its directors
18. Loan Documentation
A Guarantor Pack will be posted directly to each guarantor. The guarantor/s must take three calendar days to review these packs before signing and returning to Group Lending Services in the reply paid envelope provided.
The Guarantor/s will also be required to complete and return a Guarantor Acknowledgement Form (provided in the pack) confirming the dates they received and signed the Guarantor Agreement. If the guarantor has not taken at least 3 calendar days to review their documents before signing, the pack will be reissued. Guarantors will only be exempt from this 3 day rule if they are a director of the borrowing company, or if they receive independent legal advice and complete and return the statutory declaration provided in their guarantor pack
Whilst the loan is marked as "Guarantor Support" or "Guarantor Support Home Loan", the Bank's offer documents will show the name of the loan as the name of the product selected (e.g. 1-year Guaranteed Rate Home Loan, Standard Variable Rate Investment Home Loan).
The borrower must not be present or sign as the witness when the Guarantor signs the loan documents.
19. Interest Rates
Standard Home Loan, Investment Home Loan, Line of Credit interest rates apply.
The interest rate will depend on whether the customer’s home loan is for owner occupied or investment purposes and on the repayment type they select – principal and interest or interest only.
20. Fees
Standard Fees and Charges apply to Guarantor Support Loans.
Please note that there is no delegation to waive establishment fees for loans under Guarantor Support arrangements involving guarantors, except for MAV customers.