What are guarantor mortgages? Our guide for you and your guarantor


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What are guarantor mortgages?

With today's housing market and property prices continuing to rise, many first-time buyers are struggling to find a way to get a mortgage to purchase their own property.

There is help from government schemes but they may not be suitable for you

Whilst there are several government-backed schemes such as Help to buy, shared ownership, mortgage guarantee (not the same as a mortgage guarantor) and the latest New Home Scheme, they all have different criteria and rules.

One option that often gets overlooked is the idea of getting a guarantor for your mortgage - if you have a close family member or trusted friend then guarantor mortgages are a great option to help you get on the property ladder!

So what is a guarantor mortgage?

A guarantor mortgage requires a third party, usually a parent or close relative, to provide financial backing in case the borrower falls behind on their payments.

This will create a financial link between you and the guarantor

The guarantor agrees to make the monthly repayments or cover the repayment of the mortgage as a whole, should it be required, and are legally obligated to do so as well.

For this reason, many lenders will require proof that you have someone willing to be your guarantor and will carry out their own checks before you get a guarantor mortgage approved.

Do guarantor mortgages still exist?

Yes, they still exist and can be a good option for some people. As well as high street lenders there are many specialist lenders that also offer guarantor mortgages.

These lenders will often have different criteria to a high street lender and may have mortgage deals tailored to these situations, especially for a first-time buyer.

Where can you get information about guarantor mortgages?

If you are struggling to get a mortgage on your own and want to know if a guarantor mortgage is suitable or look at what guarantor mortgage deals are available then we suggest speaking to an independent mortgage broker or mortgage adviser like The Mortgage Stop who have access to the whole of the market.

We will be able to help assess if this is the right option for you and get you a mortgage deal that best meets your personal circumstances.

How can guarantor mortgages help?

There are several scenarios where you will find a guarantor mortgage suitable.

If you are on low income

If you are struggling to afford to buy your own home, and the government schemes are not right for you then guarantor mortgages could be a great option for you.

If you have little or no deposit

If you don't have a deposit then guarantor mortgages could be a great option for you. You and your friend or family member will typically need to make up the difference between the total value of the property and what you want to borrow as a mortgage, however, your guarantor could help you with this as part of any savings as security they commit from their savings accounts.

If you have problems with your credit history

Another reason may be if you have had problems with credit in the past that are preventing you from being accepted for a mortgage on your own.

Need to borrow more than you would normally afford

You may be able to get a mortgage but not for the property value which meets your requirements, for example in a particular school catchment area. Some lenders may be prepared to offer more on your mortgage with a guarantor.

How does a guarantor mortgage work?

Your guarantor will be required to secure their home and/or their savings against the mortgage that you take out.

They also make a legal commitment to cover your mortgage repayments should you be unable to do so, and, if in turn, they are unable to do this they also risk losing their property or savings that they committed as part of the legal agreement.

The lender will take a legal charge out, for the agreed amount, against the property deeds of the guarantor's home.

They may also require the guarantor to deposit some savings into an account administered by the lender as additional security.

Once the lender is satisfied with both your's and your guarantor's position then they will offer you a mortgage for the property you wish to purchase.

Can you have a guarantor on any type of mortgage?

It depends on the lender what kind of a deal they will offer you as a guarantor but there is no guarantee that anyone will take your application.

You will need someone who has a good credit score and the ability to cover the size of loan that you have applied for.

Each lender works differently so it's important to shop around before making decisions.

What are the advantages or disadvantages of guarantor mortgages?

There are several advantages and disadvantages for both the person taking our the mortgage and the guarantor, these include:

Advantages of having a guarantor mortgage

  • If you can't secure a mortgage on your own due to, for example, low income then a guarantor can help you by effectively guaranteeing your mortgage payments.
  • If you have had credit problems in the past or do not have a strong credit record today and these are stopping you from getting a mortgage.
  • You may not need a deposit if your guarantor has enough equity or savings to secure against your mortgage.
  • Guarantor mortgages may allow you to borrow more than you could on your own, meaning that you can get a larger mortgage or buy a larger home.

The disadvantages of having a guarantor mortgage are:

  • The lender will take a legal charge out against the guarantor's property. They may also require the guarantor to deposit some savings into a savings account administered by the lender as additional security. This can prevent your guarantor from selling their own home.
  • If you can't afford to make your payments on time then the lender will come knocking at your guarantor's door instead.
  • Having a guarantor mortgage means that your guarantor will be unable to access their own savings or any equity in the property.
  • You may have to pay higher charges for arranging this type of mortgage as well as potentially higher interest rates

How do you get a guarantor for a mortgage?

The first place which you should try is close family members or close friends who know you well.

Impact on relationships

Bringing money into relationships, especially with loved ones can have unexpected consequences. If things don't work out as planned, it is always better to be clear about your expectations and thoughts on what this means for you and your guarantor before getting a mortgage together.

What if things go wrong?

You should have an open and honest conversation with your family members about what this means for both you and your guarantor and the potential impact it could have on your relationship.

For example, if you can't afford to make the repayments on your mortgage on time then the lender will take legal action against you and potentially your guarantor to repay the mortgage.

Who can be my guarantor?

Anyone willing to commit to making your mortgage repayments should you be unable to pay them. This can be a relative, friend or someone else that has the financial means to offer this guarantee.

This person agrees that they stand behind you and your repayment obligation to the lender.

Your guarantor must be someone who can afford the commitment to you. They may need to be able to pay off a proportion of your mortgage if you have credit problems in the future.

Can a parent be a guarantor for a mortgage?

Yes, a parent can be a guarantor for a mortgage. However, it is important to consider what this could potentially mean for your relationship with your parents and any other family members that you have.

A parent must understand that their financial security may be put at risk if you are unable to pay off the mortgage that they have guaranteed. If you do not keep up repayments then they will lose their home or some of their savings too.

Can a guarantor be a family member?

A family member can be a guarantor for your mortgage but this does come with the same risks as anyone else.

There's nothing wrong with involving a family member in your mortgage payments, but it is really important to be open and honest about what this means for both parties involved.

Make sure that you have a good discussion about how they will be affected if you find yourself unable to keep up repayments on time.

What will a lender require from your guarantor?

Most lenders will require several things from any potential guarantor, these can include:

Independent Legal Advice

Lenders will insist on any potential guarantor to take independent legal advice before making this commitment for their own protection and it may also be worth seeking advice from a financial adviser.

Financial checks on the guarantor

The lender will look at the guarantor's financial position and assess whether they would be able to make repayments if you were unable to do so for any reason.

A good credit history

The lender will check your guarantor's credit score, so if they have a poor credit history then this may impact the lender's decision.

Do they have enough equity in their home?

Lenders will also require the guarantor to have sufficient equity in their own property so that they are sufficiently able to make repayments. In some circumstances, a guarantor may only be able to promise money from a savings account or what equity they have in their property.

Savings as Security

The lender may require your guarantor to have a certain level of savings which they may be required to deposit into a special savings account with them. If you then fall behind on your payments the lender may, dependant on the terms of the mortgage, may use the guarantor's savings to make up the shortfall.

The guarantor's savings become an important factor when considering a low deposit mortgage with limited equity in any property being used as the guarantee.

What are the risks of being a mortgage guarantor?

The lender can pursue the guarantor for payments if you are unable to make repayments. This may result in them losing their home, some of their savings or being pursued by the lender through other legal channels.

Does being a guarantor affect my credit score?

As a guarantor, your credit score is not affected unless the mortgage starts to fall into arrears or defaults. At this point, the lender will start to take action that will likely affect your credit score.

Contact the lender who has provided you with the mortgage that you are currently repaying.

They will be able to tell you what your options are for dealing with any problems that you may have regarding late or missed payments or if you are having difficulty in making mortgage payments.

How much can I borrow with a guarantor mortgage?

The lender will look at your income and the amount you need to borrow when considering how much they are willing to lend. The more equity that is available in any property that is used as collateral, the more likely it is that you will be able to borrow a higher percentage of the value of the property.

How much deposit do you need with a guarantor?

It's entirely up to the lender and their requirements on how much deposit may be required.

No one can guarantee for more than they can afford to give away as a gift which is essentially what happens when a mortgage guarantor does.

Can I get a guarantor mortgage with no deposit?

It is possible to get a guarantor backed mortgage with no deposit. However, this will likely mean that your guarantor will need to accept a higher charge against their property and/or deposit additional savings in a lenders savings account.

Not paying a deposit will also likely mean that the interest rate on your mortgage will be higher than if you had a larger deposit. This will mean your monthly payments will be higher.

Can I get a 5% deposit mortgage with a guarantor?

There are several mortgage products that offer a 5% minimum deposit. However, this means the guarantor is guaranteeing you're able to meet the other 95%.

The lender will assess both your and your guarantor's ability to abide by these requirements so they can ensure you can both meet eligibility criteria and for such a high loan to value (LTV) this can be quite strict.

What happens if I can’t keep up the repayments on the mortgage?

If you fail to keep up your repayments on time, the lender will take legal action against you. They can repossess and sell your property to recover their debts from you.

As the guarantor, you accept joint responsibility for paying off any debt if the borrower fails to meet their obligations under the agreement with the lender.

This means that the guarantor is also liable for any shortfall and this could be recovered by the lender either by deducting from the savings deposited or by enforcing the charge against the guarantor's property.

If you are struggling with making payments on time then it is highly recommended that you contact your mortgage lender as soon as possible.

What happens when I sell my property?

It's similar to a normal property sale, if you sell your home and the proceeds cover your mortgage this will be repaid first to your lender and the balance left over will become yours.

What about negative equity?

Negative equity is when you have a mortgage debt amount that exceeds the value of your property. If you sell your property and the sale price does not cover your mortgage amount then you will need to still pay the remainder of your mortgage. If you fail to make these repayments, then your guarantor will ultimately be responsible for paying this off.

What happens if my guarantor dies?

Lenders have different rules in place. Some may require you to find a new guarantor, such as the original guarantor's spouse) whilst others may look at the estate. However, if you maintain your monthly repayments then this shouldn't be an issue.

What is a joint borrower sole proprietor mortgage?

A joint borrower sole proprietor mortgage is when a co-borrower (usually a family member) take becomes a joint borrower on the mortgage but is not named on the legal documents such as the property deeds.

The advantage to this arrangement is that as all parties to the mortgage become jointly responsible you may be able to get a lower interest rate because it reduces risk. The disadvantage to this arrangement is that if your co-borrower stops making payments you could lose your home.

Get in touch

If you are struggling to secure your mortgage and considering going down the guarantor route or you want to understand how guarantor mortgages work then The Mortgage Stop is ready to help you. Our expert team is ready to help you secure your mortgage today.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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