What guarantees do you need to take out a mortgage in Italy?

When you take out a mortgage in Italy, the guarantees you can give the bank aren’t always enough. That is when they may ask you for a guarantor. Read on to find out more about who a guarantor is and what they do.

What mortgage guarantees do banks ask for?

Before granting a loan or a mortgage, financial entities ask for specific guarantees on the solvency of the applicant. The bank, or lender, must ensure that the borrower is able to repay the loan in monthly instalments and that, if they are unable to do so, the lender will still be able to use other assets as collateral to recover the amount they have loaned.

First of all, then, they assess the creditworthiness of the customer; usually the repayment instalments do not to exceed one third of the borrower’s monthly income and, if this percentage is not respected, the loan can be denied. In addition to the credit check, the bank or the lending institution may require additional guarantees, usually of two types: personal and real (collateral).

Real guarantees and personal loan guarantees

• Collateral, in the case of a mortgage, consists of a right in rem that guarantees the creditor the possibility of repossessing the property in the event of insolvency and selling it at auction to get back the remaining money.
• Personal guarantees are embodied in the figure of the guarantor. The Italian law governing this is linked to Articles 1936 et seq. of the Civil Code, on the subject of sureties. The person who signs as guarantor is a third party with respect to the borrower and assures the bank that the obligations will be fulfilled if the principal debtor is no longer able to honour the loan.

The guarantor, therefore, only comes into the picture when the borrower cannot pay back the loan (whereas if the payment of instalments were to proceed regularly, the guarantor may never have to intervene for the entire duration of the contract). If the guarantor has to be called in, the bank can ask them for the amounts not repaid, up to the maximum amount established in the contract itself.

Since the guarantee is of a personal nature, the guarantor is liable and so are all of their assets. If more than one guarantor is provided, each will respond pro-rata, while remaining jointly liable with the other guarantors. At the same time, however, the guarantor has no rights over the property, as they are not the owner. Consequently, the guarantor will not be able to deduct the interest payable on the loan for tax purposes either.

How to stop being the guarantor of a loan

Who's the mortgage guarantor? Usually it is a family member or someone close to the borrower with sentimental, personal or professional relationships. The bond between the guarantor and the borrower must in any case be strong, because the temptation to want to be removed from a loan contract as a guarantor is sometimes great.

In order to be relieved of this responsibility, the bank must give its consent, since any variation in the guarantees is detrimental to the bank. If necessary, the bank could give its consent in return for additional collateral provided by the borrower in the form of extra assets.

From the original Italian article: https://www.mutui.it/mutuando/il-garante-del-mutuo-cosa-fa-e-quando-necessario.html (Mutui.it)