Bank tried to turn gift to son into guarantee of home loan

Q&A: Dominic Coyle

This sounds as though they are abusing your generosity as parents to try to sign you on as guarantors for the entire loan – with your own home as security. Photograph: Getty Images

This sounds as though they are abusing your generosity as parents to try to sign you on as guarantors for the entire loan – with your own home as security. Photograph: Getty Images

 

We gifted a large sum of money to a son to help him buy a house. We were asked to sign a document to say it was a gift – quite right too.

But the back of the letter had a section that required us to sign and agree that any default by our son would put our house in danger. Our house, not his!!!!

My husband reads legal documents for a living, and had quite an interesting discussion with the lender, who passed the buck, and then the Irish Banking Federation, who created the document for the use of banks and with the lender.

We clearly didn’t sign, but I wonder if other parents have signed their houses away with this form of document?

Ms A.W., email

And banks wonder why they struggle to get rid of the distasteful odour around their reputation. There are times you really do wonder if they have learned anything at all from the travails of the past 10 years.

I can think of absolutely no reason why a bank should require a declaration of the sort you describe in these circumstance.

Your son is buying a home. Good luck to him. He hasn’t enough resources himself to meet the cost, or sufficient earnings to secure the necessary borrowings on his own. Fortunately his parents are in a position to help him financially. He is by no means unique in that.

There are clearly tax implications of making a substantial gift to your son, and, as you say, it is quite proper that the gift be recorded – both from a tax perspective and for bank files so they have a clear understanding of your son’s capacity to meet the cost of his loan.

But that’s as far as it goes. Once the gift is made the job of the lender is to assess his ability to pay off the loan amount he has applied for and whether it meets the rules set down by the Central Bank in terms of mortgage lending – or whether they are happy to allow one of the permissible number of exceptions to those rules.

This sounds as though they are abusing your generosity as parents to try to sign you on as guarantors for the entire loan – with your own home as security.

If that is indeed what they sought to do it’s pretty close to a professional con game.

Have other people got hoodwinked by such tactics?

Depressingly, if this form was indeed circulated by or to banks generally, they probably have.

The main purpose of publishing this piece is to try to ensure that no one else gets pressured into such a mistaken and entirely inappropriate assent.

In plain speaking, any such approach by the banks is disgracefully underhand.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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