Many would-be first-time buyers know the feeling - the fear that creeps into your heart when a lender tells you that you are far from being a sure-fire candidate for mortgage approval.
They point out that your wages do not quite stretch as far as they need to for the loan you want. Such responses are disheartening - and the thought of renting accommodation almost enough to make you consider robbing a bank to fund your deposit. Either that or you could approach your parents or a wealthy relative.
Recent research showed that 14 per cent of first-timers fund the purchase of their property with the help of a family member, usually their parents. The study, by the Irish Mortgage Corporation (IMC), also showed that a further 14 per cent of first-timers source deposits from a mix of personal funds and family contributions. Some borrowers go further and, as well as an injection of cash from their parents, they may ask them to guarantee the loan.
This business of "going guarantor" for somebody else's loan is a simple mechanism, which sees parents (or another party) agreeing with a lender that they will meet any shortfall in mortgage repayments if little Sinead or Sean fail to hit the mark by themselves.
Frank Conway of IMC says guarantors emerge when the borrower "falls short" on some mortgage criteria. For example, he says, a couple seeking to buy a €275,000 property with a 92 per cent mortgage would generally need to be earning a joint income of €52,000 to qualify for the loan. For a single person, this rises to €60,000. Those who do not fit into these boxes but still want the house may, Mr Conway says, be required to provide a guarantor so that the loan can be secured.
"Lenders will review on a case-by-case basis," he says. "For example, if there is an existing relationship between the financial institution and the family of an individual or couple borrowing, this will influence the decision to call for a guarantor."
As far as the guarantor goes, Mr Conway says lenders will vary in how they treat the arrangement. Some will ask for only the buyer's name to be on the deeds but will seek both the main borrower and the guarantor to be named on the mortgage documents. Some will ask the guarantor to guarantee the full amount of the loan, while others will be happy with a partial guarantee. "In a partial guarantee, the lender will assess the mortgage amount the first-time buyer(s) can afford on their own."
Generally, says Mr Conway, the guarantor will commit to the loan for a fixed period, after which the case will be examined again by the lender. This usually happens after two years but a review can be requested any time if the main borrower's financial circumstances change.
Mr Conway advises that any guarantor should seek legal advice before signing any forms that commit them to somebody else's loan. In this way, they should know all the facts without being blinded by the proud glow that will result from seeing their loved one safely ensconced in their first home.
• A previous column stated that first-time buyers are entitled to a higher level of interest relief on their loan for the first five years. This higher rate extends for the first seven years
