Mortgage Guarantee Advice

In situations where a company is acting in its own right or as a trustee to purchase a property, in order to obtain loan approval from a lender, the company will likely need to provide some form of additional security for the lender to be confident that the loan will be paid back. A company/trust may commonly be set up for the sole purpose of purchasing an investment property and may not own any other assets in its own right. Therefore, in order to reduce the risk of the company/trust defaulting on the loan, typically a lender will require the company’s director (or directors) to act as a guarantor for the loan. In practice, this is a promise to the bank that the guaranteeing director (or directors) will personally pay back the loan if the company/trust does not.

This requirement to have guarantors for a loan to a company/trust is very common, however to ensure that the guarantor is fully aware of their obligations to the loan, the bank will require the guaranteeing director or directors to obtain independent legal advice regarding the guarantee and indemnity document from a solicitor. You can imagine that having gone through the process of purchasing an investment property, and the task of setting up a company trustee and a new trust to own the property, your bank telling you that you need legal advice for your loan documents can seem like just more tedious paperwork and hoops to jump through. You may also be asked by the lender to obtain legal advice if you are a parent acting as a guarantor for your child’s loan.