Guarantor mortgage guide
What is a guarantor mortgage? How does a guarantor mortgage work? Discover the answers in this guide.
What is a guarantor mortgage?
A guarantor mortgage is a type of mortgage that’s secured by a third party (usually a parent) who agrees to guarantee the mortgage and its repayments on behalf of someone else (usually their child).
A guarantor is someone who’s liable if the borrower doesn’t make the mortgage repayments. They provide their home or other assets as security against the loan.
Guarantor mortgages for first-time buyers are most common as an option for borrowers who can’t get a mortgage on their own. This is usually because they don’t earn enough, can’t save a big enough deposit, or have a bad credit record.
A guarantor allows borrowers to access guarantor mortgage lenders and a wider range of mortgage options. This could mean borrowing more from a lender who offers guarantor mortgages or borrowing at a better rate of interest.
How does a guarantor mortgage work?
Many lenders now insist the guarantor is named as a joint applicant on a parent guarantor mortgage - a type of mortgage where parents guarantee that the borrowed funds will be repaid if their children are unable to repay the mortgage. Previously, guarantors didn’t have to be named.
This means guarantor mortgages in the UK now have different names, including:
family offset mortgages
flexible family mortgages
family springboard mortgages
joint borrower, sole proprietor mortgages
Both borrower and guarantor are responsible for the mortgage repayments. But using a guarantor for a mortgage means they’ll take on the risk as the home and/or savings used as security could be repossessed if repayments aren’t made.
The borrowers’ credit history and affordability are assessed by lenders when deciding how much to lend.
There are other potential costs linked to taking out a mortgage with a guarantor. For example, if the guarantor already owns a home, naming them on the deeds constitutes a second home which increases stamp duty costs.
You should therefore seek independent financial and tax advice if you’re considering this type of mortgage.
Joint borrower, sole proprietor
In the case of a ‘joint borrower, sole proprietor mortgage’ - where two people borrow but only one name is on the deeds - the owner qualifies as a first-time buyer. This means they’re exempt from stamp duty on the first £300,000 of properties worth up to £500,000.
A guarantor can also guarantee part of the mortgage. If they guarantee the entire mortgage the borrower might not need a deposit. Alternatively, they may guarantee the mortgage amount above 75% or 80% of the property value.
If all mortgage repayments are made on time, the mortgage works in a normal way and the guarantor doesn’t have to pay anything. But it’s important to understand that a guarantor could lose the property or other security they used to guarantee the mortgage if repayments are missed.
How to get a guarantor mortgage
In summary, you’ll need to:
Find a guarantor (this could be a parent)
Talk to a mortgage broker
Choose the right deal
Apply for a guarantor mortgage
There are lots of guarantor mortgage providers and different options available from high street lenders and specialist mortgage brokers.
Different rules apply from lender to lender in terms of eligibility criteria so speak to an independent broker or financial adviser to find the right guarantor mortgage for your circumstances.
When researching who does guarantor mortgages, lenders have restrictions on whether they’ll offer you a guarantor mortgage. These include:
Where you live (some are only available to borrowers in England, Wales, or Scotland)
Your age (some only accept applicants over 21)
Your deposit amount
Your income, credit history, and outgoings (this forms part of an affordability assessment)
If the property is your main residence (guarantor mortgages aren’t available for rental property or second homes)
Whether you’re a first-time buyer
Who offers guarantor mortgages?
Partly due to the difficulty for first-time buyers getting on the property ladder, guarantor mortgages have become increasingly available from a wide range of guarantor mortgage lenders, including (but not limited to):
Cumberland Building Society
Ipswich Building Society
Leeds Building Society
The Cambridge Building Society
The Tipton Building Society
There are many similar products with different names:
Traditional guarantor mortgages
Family deposit mortgages
Family offset mortgages
Family Link mortgage
Flexible family mortgage
Frequently asked questions for borrowers
Answers to your questions as a borrower.
Who is a guarantor mortgage suitable for?
Parent guarantor mortgages are designed to help children buy their first home. A guarantor mortgage can also help borrowers with low incomes get on the property ladder. A guarantor could also help low income borrowers to increase the size of the mortgage they can apply for.
They also help borrowers who can’t save the necessary deposit. For borrowers with a poor credit score or limited credit history, having a guarantor could persuade a lender to lend.
Can I get a mortgage with a guarantor?
To check if you’re eligible for a guarantor mortgage, first find out if you have a relative who can be a guarantor on a mortgage. The lender will want to know if they can pay off their own existing debts as well as the new mortgage.
As a potential borrower, even with a guarantor, you’ll need to pass a basic credit check. The guarantor will also need a good credit score, be 21 or over, and be an existing homeowner. Someone with direct financial links to you, such as your spouse, may not be eligible.
How is a guarantor mortgage repaid?
Guarantor mortgage repayments occur over the same length as a standard mortgage, normally 25 years.
When a guarantor signs the agreement, they commit to settling the mortgage if the borrower can’t make the mortgage repayments.
If this happens, direct debits are switched over to the guarantor. This makes the guarantor liable for extra lending charges for missed payments.
What happens if the borrower misses a payment?
Lenders have different rules regarding this. However, in general they could:
Ask the guarantor to make the payment
Offer you extra time to make the payment
Charge a fee
Take some of the guarantor’s savings held in deposit
Extend the period the guarantor’s savings are held in deposit and are unable to be withdrawn
If too many payments are missed, they could repossess your home or even the guarantor’s. If you think you’ll miss a payment, talk to your lender straight away. They’ll want to help find a solution.
How much can I borrow with a guarantor mortgage?
This depends on your financial circumstances, but a guarantor mortgage helps borrowers in two ways:
It reduces the deposit you need, and in some cases you may not need a deposit at all.
If your income is low, a guarantor’s income means lenders may lend more than if you’d applied alone.
Frequently asked questions for guarantors
Answers to your questions as a guarantor.
What does being a guarantor for a mortgage mean?
The guarantor doesn’t own a share of the property. They simply sign a legal agreement to make repayments if the borrower can’t, using property they own or savings as security. The lender holds a charge on the property and can repossess it if repayments aren’t met.
Savings are put into an account held by the lender for an agreed period during which they can’t make withdrawals. They can be used to cover any missed mortgage payments.
A guarantor must:
Own their own property or have enough equity for the lender’s requirements
Have a good credit record
Have enough income to cover the cost of mortgage repayments
Do you need a deposit as a guarantor?
Not always. If the guarantor guarantees the full loan or an agreed percentage of it, the borrower may be able to borrow the full 100%.
If savings are used as security for a guarantor mortgage, they’re put into a lender-approved savings account, and held for an agreed time or until the borrower’s mortgage period ends. Sometimes interest is paid, other times interest earned is used to pay off interest charged on the borrower’s mortgage.
If the home is repossessed, savings can be used to cover the difference between what the property is sold for and the amount owed by the borrower (for instance, if there’s negative equity).
Some lenders allow guarantors to put savings towards the loan to increase the deposit. This could allow the borrower to borrow more at a lower loan-to-value (LTV) ratio, unlocking more competitive deals.
How long does a guarantor stay on a mortgage?
Becoming a guarantor is a long-term commitment. Usually, a guarantor won’t be released from the mortgage until:
The loan is repaid
The Loan-to-value ratio falls below an agreed amount
The borrower can prove they can afford the mortgage on their own
It’s important to check if the guarantor mortgage is portable or if the borrower has to stay with the lender.
Does being a guarantor affect my mortgage?
As long as the terms and conditions of the guarantor mortgage are upheld, the guarantor won’t be prevented from taking out other loans or mortgages in the future (though it could restrict their ability to borrow more during the term of the guarantor mortgage).
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