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Parent Guarantor Mortgage

Rita Kohli explains how a parent guarantor mortgage works.

Can parents be guarantors for a mortgage?

Absolutely. Nine times out of ten it is a parent that’s the guarantor. It’s for logical reasons, really, as a potential financial backup.

Most parents have either already paid off their mortgage or have a small mortgage left. They may have low liabilities and potentially more disposable income – so they’re in a strong position to be a guarantor.

Is it easier to get a guarantor mortgage with your parents?

It’s not necessarily easier, but it’s certainly helpful. It’s really about having an amicable understanding and being open about your financial situations – with no skeletons in the closet.

You’ll be assessed like anybody else, as if it were a joint mortgage – whether it’s with a parent or not.

Is there an age limit when parents are mortgage guarantors?

Yes, there is. Lenders often want to cap the maximum term that you can have for a mortgage. And naturally, parents’ ages can be the stumbling block, unfortunately.

Although they’re in a stronger financial position, their age can be a hindrance, but there are specialist lenders who will look outside the box.

For example, the general cutoff could be age 75 – you can’t do much about that. Certain lenders may go to age 85, however. But age caps can limit your options.

What are the risks to parents of being a guarantor on a mortgage?

If the main person on the mortgage can’t afford to pay the monthly payments, naturally the liability falls onto the parent’s head.

For this reason, the lender will specify that the parent has to have independent legal advice so they understand the full consequences. Essentially, if the child can’t pay, a parent has to step in.

It’s between the parent and the child as to how long that arrangement will last for. From a lender’s perspective, they’ve assessed both the child and the parents and they are equally liable.

Do the parent and child both need good credit for a guarantor mortgage?

Ideally, it would be good for both to have good credit ratings – it helps streamline the application.

If either of them have had credit blips, we’d look at the full history to understand exactly what that is. It is easier if they do have a good credit record.

Some lenders may be okay if it’s something historical – maybe five or more years ago, for example. Your credit file lasts for six years, after which they may waive it, but there are no guarantees.

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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 a parent and child get a guarantor mortgage with a gifted deposit? Do you need a deposit for a guarantor mortgage?

Yes, often the parent is both the guarantor and the gifter of the deposit, as well.
You can do both. You do still need a deposit for a guarantor mortgage.

What power does a parent guarantor have?

A guarantor wouldn’t necessarily have any powers above the main buyer. When an application is put in, it’s assessed as a joint mortgagee, so the parent won’t have any authority over the child living in the property. They are signing to say that they are equally responsible for paying the mortgage.

If the child hasn’t paid the mortgage and the parent has now become liable, from a lender’s perspective, that’s tough. It’s what you’ve signed on the dotted line for, and why you got the advice in the first place. It’s equally both parties’ responsibility to pay.

If a parent is a guarantor on a mortgage, how long are they liable?

They are liable for as long as they’ve agreed to, in the terms of the application. If it’s a 15 year mortgage, as long as they are named as a guarantor, they’re liable for 15 years.

Typically, this approach is used to help a client get on the property ladder. Mum or dad would be guarantors for the initial 15 year term.

But perhaps you take out a five year fixed rate. In five years time, you can look to remortgage. You could have a conversation with an advisor about taking mum or dad off the mortgage – because now you’re earning more money. You might have had several promotions and are now ready to take on the mortgage in your own right.

As part of the remortgage, you can have the guarantor taken off. The mortgage is then just based on your age and affordability – and you can look to lengthen the mortgage term, as well.

Do parents need to already own a property to be a guarantor?

Nine times out 10, they do normally have their own property. They’ve often paid off their mortgage, or are almost there. We’d have to check the criteria per lender around any requirement for them to be a homeowner.

If the parents are renting, however, I’d say they’re just as credible, as long as they’ve kept up with their rental payments and have good credit.

What else do we need to know about a parent guarantor mortgage?

If you’ve got a good relationship with your parent, where they’re happy to share details of their finances – and equally you with them – it certainly makes the process much smoother.

When the broker puts in an application, they have to declare both parties’ financial details.
Although it’s not a joint mortgage, it’s still assessed in the same way. You’re equally liable, so it’s important to be open and honest with each other.

Is it realistic, considering the type of job the child does and their qualifications, to eventually take the guarantor off? A parent might not want to be on that mortgage forever – so it’s important to have an open conversation.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS. YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.

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