“It’s also important that people don’t feel pressured into going guarantor; in the worst cases, this can amount to financial exploitation, or what’s known as elder financial abuse,” she says.

The BCCC monitors banks’ compliance with the Banking Code of Practice, which includes obligations to ensure customers make fully informed decisions before agreeing to be a guarantor.

The committee is undertaking a follow-up enquiry on banks’ loan guarantee practices after its 2021 review on the same topic found banks failed to consistently provide full disclosure of key information to guarantors, among other failures.

The Australian Securities & Investments Commission’s MoneySmart site says guarantors who put up their house as security must understand that if the borrower defaults on the loan, the lender may sell the house to pay the debt.

It also says that if the guarantor applies for a loan in the future, the fact they are a guarantor will have to be disclosed to the lender, which could affect the guarantor’s ability to get credit.

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AMP financial planner Andrew Heaven from WealthPartners Financial Solutions says his clients include those who are considering becoming a guarantor for their child’s mortgage.

He says many are currently thinking that while interest rates are rising, property prices are falling and it could be a good time to get onto the property ladder.

“As a financial planner, I am not there to be a cheerleader for what they want to do, but to make sure they are making informed decisions, taking into consideration their individual circumstances,” he says.

“If a lender requires them to go guarantor, they should ask themselves why,” Heaven says. “I point out to them that their kids have many more pay packets ahead of them than they do.”

It is often the case that a lender requires a parent to be a guarantor not because the child’s cash flow is poor but rather that the child has too small a deposit, Heaven says.

Instead, parents could supplement their child’s income to help the child save for a larger deposit. “You can gift your child money, as long as you are very aware that it is not coming back”, he says.

He says the federal government’s Home Guarantee Scheme, where qualifying first-home buyers need a deposit of only 5 per cent, is worth looking at; though places in the scheme are limited.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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