Going guarantor for parents loan

I have a little situation that I am wondering how to solve.

My parents are looking to buy sell their existing PPOR and buy a smaller PPOR. The problem is that their income is now only around $40k p.a. and they have c.$200k existing on their loan. Their plan is to sell down their PPOR (which could probably fetch $600k to $650k) and buy (possibly even build) a smaller place ($400k) for cash.

The problem is that no bank will lend them money so they will essentially need to sell their current place to get the money to build. Problem is that they can do only the following (in my mind)
- Sell existing place then rent whilst waiting to buy/build a new place
- Buy subject to existing sale of home

I was wondering if there is a more elegant solution around this problem?

My thoughts was to be a guarantor for a loan for them to buy or build a new place and once that is done, they can take their time to sell down their existing property to repay the loan I am a guarantor for? Any thoughts?
HI ermen,

I doubt they will be able to obtain a Vendor willing to wait for them to sell their existing home.

If you were to go Guarantor the bank would take a Mortgage over your property. In order for them to do this, you would have to:

a) Have enough equity in your home to cover their property.
b) Be able to meet servicing requirements.
c) Mortgage with the same bank you are currently with or if your property is unencumbered - no problem there.

Can I ask why your parents need to build a home? To me this sounds like more unneeded stress. The whole selling and downsizing process for most elderly people is stressful enough without throwing in the building process.

Regards JO