Do I need a Guarantor?
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Do I need a Guarantor? (Part 1)
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.
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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Do I need a Guarantor? (Part 2)
We continue the conversation on guarantor mortgages with Rita Kohli. Part two of two, recorded in June 2024.
How much does a guarantor need to earn for a mortgage?
There’s no specific amount, but certainly when we look at the main applicant, we look at their earnings, their commitments and what is required for them to bridge the gap.That’s where the guarantor comes in. We generally have a meeting with that potential guarantor so that they fully understand their commitments, and then look at their earnings. It all depends if they’re still working: are they self-employed, working part time or retired?
We could look at variations of different incomes. Sometimes we may require both mum and dad to be guarantors to boost the mortgage potential.
So unfortunately, it’s not a clear-cut answer, but keep an open mind, don’t rule anything out, and then we could sit down and assess everybody’s situation.
What happens if my guarantor is unable to make repayments too?
The risk to the guarantor is that they fall into bad credit, which is a vicious circle for both the applicant and the guarantor. Obviously, the debt will increase, and if they’ve got their own mortgage as well, they have to keep on top of that.It could get to a point where a lender will send notifications to both the applicant and the guarantor, but the liability ultimately comes down to the guarantor – because that’s what they signed up for in the first place. um The worst case would be repossession of the property.
Can I get a guarantor mortgage for a Buy to Let property?
No. The schemes are specifically designed for buyers to get on the property ladder and buy a home to live in. A guarantor is supporting you to invest in your own residential property, with the aim towards independently owning it.A Buy to Let is considered as a business investment. It’s seen as nice to have, not essential, so the guarantor structure is not designed for Buy to Let properties.
Can a parent be a guarantor if they are retired?
Yes, absolutely. The only restriction you’ll have is their age, depending on the lender and their criteria.I mentioned in part one that one lender offers an income booster scheme, where a parent may be retired and we use their pension income. This lender looks at the main applicant and their income, to see how long they’d need the mortgage before they could afford it independently.
A mortgage decreases over the years, so eventually they will potentially be able to afford it on their own. At that point, the guarantor could come off the mortgage. So that approach allows the applicant to not be pressured with shorter terms and higher monthly repayments based on the guarantor’s age.
These types of mortgages are becoming more and more sophisticated. So don’t be put off if a guarantor is retired. In fact, pension income could be a more stable and guaranteed income than employed income. If your parent or relative is nearing state retirement age, lenders may only use their pension income anyway. There are lots of factors to consider, but yes a retired person could be a guarantor.
What happens if my guarantor dies?
Obviously the lender needs to be notified and they will look at the whole situation. They will reassess your application and see if you are able to take on the mortgage on your own merits without a guarantor.Hopefully, based on your latest income and outgoings, you might be in a situation where you’re able to independently take on the mortgage. But if not, they’re not just going to end the mortgage because it seems unaffordable.
They will work with you. Some lenders, depending on the affordability, may even allow you to keep the scheme until you could take it on in your own right. They’re not there to kick you out of the house. They’re there to lend you the money to keep you there and will help you.
Do guarantors get credit checked?
Absolutely, yes. It’s all independently checked for both the applicant and the guarantor.
Can I stop being a mortgage guarantor?
Yes. Initially, it’s a bit difficult to come off, because the idea is the applicant builds up their income and equity in the property, and then independently takes on the mortgage at the remortgage stage.If a guarantor wants to come off, it requires a conversation with the applicant and the lender. You may have to get your mortgage adviser involved again to assess whether you could afford it independently.
If you can’t quite meet the affordability, you could find a different guarantor. For example, if the father is the original guarantor and wants to come off, an applicant could then approach their mum or stepdad. As long as they’ve got some income, they’ll be assessed on a whole new application, but it means somebody else is taking on the guarantee.
Can I get a guarantor mortgage with bad credit?
Unfortunately, not – it’s very difficult. That’s the case whether you’ve got bad credit or your guarantor has. From a lender’s perspective, this approach is already quite high risk. They’re loaning you an amount which is actually over your earnings and allowing a guarantor to step in if needed.If either applicant has bad credit, it suggests you’re not particularly great with money.
That makes lenders nervous. So you need to have a clean credit record for a good chance of approval.
How do I get a guarantor mortgage?
We would look at providers across the whole market, based on the applicant’s personal circumstances, how much they want to borrow, the deposit they have and the guarantors’ situation.It’s definitely important to have a joined up meeting. We might meet the applicant first and then see them again with their guarantor, so that everybody’s on the same page. That’s the main thing, because it’s a huge commitment – not just for the applicant, but for the guarantor as well.
I will openly ask a guarantor how many other children they have. If they’ve got stepchildren, it might get complicated – because they won’t just want to help one child, they will want to help the others equally too. But how many times could they be a guarantor?
We have frank conversations on how things stand, how it works and whether there are other options. Would they be able to provide a bigger deposit instead?
There will be workarounds to look at, such as Joint Borrower Sole Proprietor. There, the parent is almost acting like a guarantor – they’re supporting the mortgage but aren’t on the deeds to the property.
It’s only for a few years, and at that point the applicant could take on the mortgage in their own right. Then, the parent may want to help the next child along.
The other thing I’m always very conscious of is data. A parent may not necessarily want to share all their financial information with their child – and vice versa. On a mortgage application, everything is declared and everyone will see each other’s information.
So getting a guarantor mortgage involves a lot of prep, lots of conversations and big commitment. We’ll confirm exactly what the monthly repayments would look like and all the details for your final decision. Is everyone happy to sign on the dotted line? The process itself is exactly the same as any other mortgage application.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.