Banking Ombudsman issues guide on guaranteeing another person's debt

The Banking Ombudsman is warning people to make sure they get their head around the risks they would be taking on before agreeing to guarantee someone else's debt.

Banking Ombudsman Deborah Battell says her office is supporting Money Week 2013, which is this week, by publishing a guide to ensure people considering guaranteeing another person's debt understand the potential risks to their own finances. She highlights the introduction, by the Reserve Bank, of restrictions on high loan-to-value ratio (LVR) home loans from October as having the potential to increase the number of people guaranteeing other people's debts.

“Problems people encounter with guarantees when things go wrong consistently feature in our caseload each year, and while the numbers aren’t high, we are concerned that people don’t know enough before they agree to be a guarantor," said Battell.

“With restrictions on low deposit mortgages taking effect from next month, it is possible more low deposit borrowers will seek guarantors to secure funding for their home loan, and it’s crucial all concerned are fully informed about what that involves in terms of financial risk," Battell added.

She said although learning from mistakes was bad enough, learning from mistakes you don’t realise you are making is even worse.

"We want to help people learn without the pain.”

The Banking Ombudsman's guide on what people need to think about when deciding to guarantee somebody else’s borrowing aims to help inform people and encourage them to ask themselves the questions they need to consider before becoming a guarantor, Battell said.

“More often than not, a guarantee arrangement can work well, and is a useful financial tool. But we have found complainants with problems around guarantees are often not fully aware how being a guarantor can expose them financially."

“Unfortunately, ignorance is not a defence and we have seen guarantors find themselves in dire financial straits, which is all the more distressing given their good intentions,” said Battell.

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13 Comments

WHAT THE HELL IS WRONG WITH YOU JAFAS?
I've had three seperate visitors from Auckland in the space of a week and all three talked about nothing but houses.
No exaggeration, it was all just "Houses, houses, houses, houses, houses, houses, houses... Mortgage interest rates, desirable school zones, fixer-upper vs new, bathroom colour schemes, investment, investment, investment..."
You people are out of your minds. If you were as obsessed with a person as much as you were your house, you'd be in prison, and in a sex-offender program.
My GOD, this is a totally arse-backward country. It really is.

So, what would you like to talk about? Other than talking about people talking about property? How 'bout dem Warriors, eh. 

Ha Ha
Well put Mr Malarkey. Absolutley spot on.
Top of the morning to you!
 

Actually i will add a bit to this Mr Malarkey.
Too many people in this world are afraid to run a real business, which employ others, that pays taxes, that produces things.
What they do is buy & sell houses to each other.
And then they wonder why the world is such shambles.
 
 

LOL, yes. 
"By the mid 1930s he (Joseph Kennedy, patriarch of the family that spawned a president, three senators and a congressman or two, was worth only about $4 million US) was worth $180 million, or about $2.3 billion in today's money. The reason: he sold out before the crash.
The anecdote is that a bellhop or an elevator operator gave Kennedy a stock market tip in 1928. He is said to have figured that if hotel staff were giving market tips, it was time to bail."
Some quotes,
1929, "Because stocks prices had been on the rise, they gained the reputation of being a safe way to invest. Many investors believed stocks were their ticket to riches."
Debt driven/fueled production,
"Factories had begun to overproduce consumer goods, but demand for those goods increase at the same rate. Prices of those goods began to fall, but once the stock market
crashed, few people could afford to purchase goods"
Does the madness sound familiar? 
regards
 

Did they all own their own homes?  And if so, were they interested becuase they wanted to own more than one?
 
I could understand those presently renting talking about nothing else perhaps .. so the question is - is it all just greed (i.e. more for me) type talk?

The best comment this year...!

Tee, hee Malarky. And here's more fuel for that particular fire - http://www.interest.co.nz/property/66159/spring-surge-house-listings-not...
As a matter of interest, where do you live and what floats your boat?

Down south. Will talk about most things, but not houses. Not now, maybe not ever. I'm all propertied out.
To be fair it's not really just the JAFAs with what clearly is a seriously sexually deviant house fetish.
It seems like no matter where I go -- cafes, meetings, public places, whatever -- I'm surrounded by a sea of smug silver-haired people and their smug and coddled children talking endlessly about the boundless joy of houses.
It's just about everybody, everywhere..... Seems like even farmers talk more about residential property than farming now.
New Zealand is now like nothing but a real estate agent's showroom.
Dunno about you, but I just can't see this psychotic house obsession ending well.

Could not agree more Malarkey.....even for those of us Jafas bored to death with the social set  of one time wife swappers , now swapping  Real Estate Mags containing more bulls*%t one liners than you'll hear in Labour's Leader selection process.
Plenty of us sick to death of it  up here as well, but if I guess right, you won't be chatting about how long Otago can keep the shield this time.....? 
 

Are you talking about these one liners?
Great starter beaut location, lie back on the porch and sip coffee while watching the sun go down, breath new life into this place in a quiet cul-de-sac, opportunity beckons, stylish, modern and sunny, short stroll to the cafes, top school zone, a honey of a unit, more than meets the eye, prudent purchasers be quick, be quick to bag yourself a bargain, absolutely superb investment,  best of both worlds, investment supreme, make this yours, this wil tick all your boxes, these types of property are a rarity in todays market, trendy townhouse for an astute buyer, going going gone, spring into action etc.....

The dangers  of signing a debt guarantee is a fairly interesting topic of conversation. A simple word of advice to anyone considering signing one: Don't.
 
This thread could be used as a definition of irony.

Well sometimes it works. I did it for my son. With being guarrantor, he got a loan for machinery at a differential of nearly 10% on the interest rate. Nearly paid off now and he has kept himself selfemployed for the past 4 years with it. A lot of his university educated mates are earning min wage in coffee shops etc. If we are able we should back our kids.