Do I need a Guarantor? (Part 1)

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Do I need a Guarantor? (Part 1)

Do I need a Guarantor? (Part 1)

Rita Kohli explains the mortgage forms of a guarantor mortgage and how this could be a helpful option to help you buy a home. Part one of two, recorded in June 2024.

What is a guarantor mortgage? What is a parent guarantor?  

Guarantor mortgages are frequently talked about, however, they don’t actually exist anymore. 

In the past, they were used where a parent was mortgage free with their house as an asset, and their child was going to buy a property but hadn’t quite got enough income. They could go to mum and dad for support, and the parents would guarantee to a lender that the child would pay their mortgage payments. They would put their house up as the guarantee.

Today, there are different versions and variations of that. Again, a family member is involved – and it’s expanded beyond parents now. Typically, again, it might be used by a First Time Buyer who’s just starting out their career. Their earnings are low, but they’ve got the potential to earn a lot more in the next five years or so. 

They’re leaning on a family member for support to get on the property ladder. That’s where different schemes come in, as we’ll see. 

Do mortgage lenders still accept guarantors? Is it easier to get a mortgage if you have a guarantor?

There are different variations of this, with lots of different criteria. It’s often building societies that specialise in it compared to big banks. It’s so niche – it depends on your circumstances, your earnings and the area that you want to buy in. 

It’s also crossing over into Joint Borrower Sole Proprietor, and even the high street banks do this. There are also things like income and deposit ‘booster mortgages’ and family assist mortgages.

In terms of whether it’s easier to get a mortgage, again, it comes down to who your guarantor is and their financial situation, because a lender is assessing both the applicant and the guarantor. It’s not always the easiest option. 

How does a guarantor mortgage work? 

In a nutshell, the guarantor doesn’t have any legal rights to the property. Their name is not going to appear on the deeds and they sit in the background of the mortgage as well. 

They sign a guarantor contract so they are legally bound to the mortgage should the main applicant not meet their payments. These mortgages are designed to help with stamp duty for a First Time Buyer. There’s a certain allowance where you don’t pay stamp duty, but as soon as somebody’s added to your mortgage who is not a First Time Buyer, stamp duty becomes payable. 

This approach avoids those complications  – it just means the lender has somebody else to pay in the background, if needed.

It’s assessed based on the guarantor’s earnings, age and commitments, as well as the main applicant. Also, does the applicant have their own deposit, or is it being gifted from the guarantor? 

It’s important to note that the guarantor’s age could affect how long a mortgage term you could have, which then impacts how much your mortgage payments are going to be.

How does an income booster guarantor mortgage work? 

The income booster mortgage is from a lender called Gen H, where not just a family member but also friends could support your income by being a ‘booster’ onto your mortgage.  Again, they don’t have legal rights to the house, but they’re supporting your mortgage. 

It still comes down to their personal commitments and outgoings. But this lender takes a view on the fact that there’s an older guarantor, and doesn’t restrict the term in the same way as a high street lender would based on age.

It’s quite niche and because there’s so much variety to these different mortgage types, it’s best to speak to a mortgage advisor. We’ll explore the options across the market and look at your guarantor’s circumstances. Then we could do all the research to give you a precise answer.

Will I be able to borrow more with a guarantor mortgage? How much of a mortgage can I get with a guarantor?

It purely comes down to the applicant’s personal and financial circumstances, as well as the guarantor’s. It’s not necessarily that you could borrow more, because there are restrictions that come with it, but it is certainly a stepping stone.

Speak To an Expert
We’ll help you compare mortgage offers from different lenders and find the one that’s right for you. We can also answer any questions you have about the mortgage process and help you understand the paperwork.

Can you get a 100% mortgage with a guarantor?

Typically, lenders still like you to have a deposit. If you’ve got 10%, that’s seen as less risky,  and because we’re adding a guarantor into the mix, that deposit should help the lender assess your circumstances more positively.  So I would suggest you aim for a 90% mortgage if possible.

Do guarantor mortgages have higher interest rates?

No – even though it’s such a niche market, you could still get standard mortgage rates. That’s the good news. There’s no separate product, if you like, for guarantor mortgages.

Who is a guarantor mortgage suitable for? How do you qualify for a guarantor mortgage?

Typically it’s for First Time Buyers wanting to get onto the property ladder. You may not necessarily want to buy a flat, for example, even though it’s slightly cheaper. You may be wanting to upgrade to a house because it’s near the family or in a certain area. 

A guarantor style mortgage gives you a stronger position with the banks – you’ve got support from the guarantor to lend you that bit more. Perhaps you’ve just come out of university, you’ve got your first proper job, and if you’re in a profession like accountancy or dentistry, you know that in the coming years, your salary will be much higher.

In future, you could take on that mortgage independently. It’s very suitable for people that are up and coming in their careers, but haven’t got that income yet.

What documents should I provide for a guarantor mortgage? 

It’s the same as for any application. The lender is assessing both you and the guarantor, and they want to see the standard documents in terms of proof of income, recent bank statements, savings statements to show what deposit you’ve got and your credit file. 

The guarantor may also have their own mortgage and the lender will assess whether they could still afford to pay their own mortgage as well as yours in the worst case scenario. So everything is assessed looking at both parties.

Who can guarantee a mortgage?

It’s typically parents, a brother or sister, and the market is now widening to friends or other relatives as well.

What are the risks of a guarantor mortgage? Are there any downsides of being a guarantor on a mortgage?

Both the applicant and the guarantor are taking on equal risk. Although the applicant might fully intend to pay their mortgage payments, if they can’t for whatever reason, the guarantor has to step in. The guarantor is equally liable. 

The worst case scenario is if the applicant and the guarantor both can’t pay their mortgage, it would mean poor credit for both parties and, even worse, repossession of the guarantor’s home.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. 

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