A credit rating repairer has predicted an imminent escalation in the number of well-meaning parents of first homebuyers with worse credit ratings as they approach pre-retirement.
With first home buyer's grants in some states having been pulled back, MyCRA Credit Repairs CEO Graham Doessel says a possible rise in parent equity loans is a 'dangerous trend' that could see parent credit ratings impacted.
Doessel says if the loans fall into arrears, parents would be liable, forcing them to work much longer than anticipated to pay off the debts that impact their own credit rating.
“Many people go guarantor for their children, without assessing the risks to their own finances should the home loan repayments not be met. If the child falls into arrears with payments, the parent is liable for any debt, and they are also blacklisted from credit accordingly,” Doessel said.
Doessel said if the child fails to make repayments the parents are liable for this debt, and if this extends past 60 days, the creditor can place a default on both credit files.
"In some cases parents are not aware repayments have stopped, and it’s not until they attempt to take out credit themselves and are refused that they realise there is a problem,” Doessel says.
A default on someone’s credit file can severely hinder chances of obtaining credit, and remain on file for five years.
“Worst case scenario, is the bank begins to use the property the guarantor put forward as collateral, to recover lost debts," Doessel said.
"There is a danger the guarantor can lose their home. Those people who were so close to financial freedom are now facing debt, and a shaky retirement.”