Parents acting as guarantor for a mortgage

The key points at a glance

In today's housing market, it can be tough for first-time buyers or single people to get on the property ladder. Having parents act as guarantor can help, since you may be able to borrow more as a result. Unfortunately, many providers are not easily persuaded, as they want to limit the risk of you being unable to meet the monthly payments.

1. Parents acting as guarantor

In the past, mortgage providers were more willing to extend extra credit when parents would act as guarantor. They assumed the parents' home had sufficient equity and therefore didn't foresee any problems. In recent years, however, it has become clear that property values can also fall significantly, leaving many homes in negative equity. Banks today are therefore very reluctant to take on a loan for someone else, even with a parental guarantee.

Banks are now very cautious about guarantor arrangements. There may be the occasional provider open to this, but they will look very closely at the income prospects of the child: is it realistic to expect that the child can carry the mortgage on their own within 5 years, given their education, current job, and average salary at that career stage? It remains a big exception in the current market.

2. Joint and several liability

If you're calculating a mortgage with your parents acting as guarantor, bear in mind that they will be jointly and severally liable for the mortgage loan, just like you. This means the provider will always try to recover the monthly payments (interest plus repayment) from you first.

If you can no longer meet your obligations, the bank will turn to your parents. They are then required to fulfil the obligations to the provider, based on the joint and several liability they took on when they agreed to act as guarantor.

3. Family bank construction

Rather than having your parents act as guarantor, you could also set up a family bank arrangement (familiebankconstructie). In this case, you borrow money from your parents and can deduct the interest if you meet the relevant tax conditions. You can charge a market-rate interest, and your parents are allowed to gift a portion of it back to you. This kind of arrangement can result in significantly lower monthly costs. Always tell your mortgage provider and your mortgage adviser about any family bank arrangement when applying for a mortgage.

4. Family mortgages

Some banks offer a dedicated mortgage product where your parents or grandparents can support you financially when buying a new home. Rabobank, for example, offers the Generatiehypotheek (Generation Mortgage). The (grand)parents co-sign for the portion of the loan that the child cannot yet cover based on their own income. The bank does expect the child to be able to carry the mortgage independently in the future, as their income grows.

Knab also offers a family mortgage, though it works differently from Rabobank's version. If you have a property in mind that costs more than your maximum borrowing limit, you can use a Knab family mortgage to borrow part of the money from a family member. Knab helps you document all the key details to avoid any awkward misunderstandings in the future. The loan from a family member must be reported to the Belastingdienst (Dutch Tax Authority), and it's also wise to formalise the mortgage with a notary. If you take out a family mortgage to supplement a bank loan, the loan also needs to be tested to prove you can cover the repayments. If you meet the right conditions, the mortgage interest on a family mortgage is tax-deductible.

Frequently asked questions

How much more can I borrow if my parents act as guarantor?

In the past, mortgage providers were more willing to extend extra credit when parents would act as guarantor. They assumed the parents' home had sufficient equity and therefore didn't foresee any problems. In recent years, however, it has become clear that property values can also fall significantly, leaving many homes in negative equity. Banks today are therefore very reluctant to take on a loan for someone else, even with a parental guarantee.

Can my parents make a gift to help me?

It is possible to receive a tax-free gift, for example from your parents, of up to 103,643 euros. You must then use this amount to buy or renovate your own home, pay off your mortgage or remaining debt, or buy out ground lease, building rights, or encumbrance rights on your property.

What is a family mortgage?

Some banks offer a dedicated mortgage product where your parents or grandparents can support you financially when buying a new home. Rabobank, for example, offers the Generatiehypotheek (Generation Mortgage). The (grand)parents co-sign for the portion of the loan that the child cannot yet cover based on their own income. The bank does expect the child to be able to carry the mortgage independently in the future, as their income grows.