Discover what a guarantor mortgage is, how guarantor mortgages work and how to find the best deals
What is a guarantor mortgage?
A guarantor mortgage is secured by a third party, usually a parent.
They agree to guarantee the mortgage and its repayments on behalf of the borrower, usually their child.
A guarantor is liable if the borrower does not make the mortgage repayments. They provide their home or other assets as security against the loan.
Guarantor mortgages for first time buyers are more common for borrowers who cannot get a mortgage on their own.
This is usually because they:
do not earn enough
cannot save a big enough deposit
have a bad credit record
Having a guarantor gives borrowers access to 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.
This is a type of mortgage where parents guarantee that the mortgage will be repaid if their children are unable to do so.
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
The borrower and guarantor are both responsible for the mortgage repayments.
The guarantor takes on the risk as their home and/or their savings are used as security. Their home could be repossessed if repayments are not made.
A lender will consider the borrower's credit history and affordability when deciding how much to lend.
There could be extra costs when taking out a mortgage with a guarantor. If the guarantor already owns a home, having their name on the deeds would mean they own a second home which increases stamp duty costs.
Get independent financial and tax advice if you’re thinking of taking out this type of mortgage.
Joint borrower, sole proprietor
A joint borrower, sole proprietor mortgage is one where two people borrow but only one name is on the deeds.
This means that the owner qualifies as a first time buyer and will not have to pay 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. Otherwise, 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 the normal way. This means the guarantor does not 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
To get a guarantor mortgage, you’ll need to:
find a guarantor (this could be a parent)
make an offer on a property
talk to a mortgage broker
choose the right deal
apply for a guarantor mortgage
There are usually lots of lenders who offer guarantor mortgages.
They have different rules so speak to an independent mortgage broker or financial adviser to find the right guarantor mortgage for your situation.
Learn more in our 100% mortgages guide.
Lenders have restrictions on whether they’ll offer you a guarantor mortgage.
where you live (some are only available to borrowers in England, Wales, or Scotland)
age (some only accept applicants over 21)
income, credit history and outgoings
if the property is your main residence (guarantor mortgages are not available for rental property or second homes)
whether you’re a first time buyer
Who offers guarantor mortgages?
More and more lenders have been offering guarantor mortgages partly because of the difficulty first time buyers have getting on the property ladder.
Lenders who usually offer guarantor mortgages include:
Cumberland Building Society
Ipswich Building Society
Leeds Building Society
Cambridge Building Society
Tipton Building Society
Frequently asked questions for borrowers
Answers to your questions as a borrower.
Parent guarantor mortgages can help children buy their first home.
A guarantor mortgage can also help borrowers with:
low incomes to get on the property ladder
low incomes to increase the size of the mortgage they can apply for
You first need to 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.
You pay a guarantor mortgage over the same length of time as a standard mortgage, normally 25 years.
When a guarantor signs the agreement, they commit to settling the mortgage if the borrower cannot 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.
Lenders have different rules about this.
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 you find a solution.
This depends on your financial situation.
A guarantor mortgage can help borrowers in 2 ways:
it reduces the amount of 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 apply alone
Frequently asked questions for guarantors
Answers to your questions as a guarantor.
The guarantor does not own a share of the property.
They simply sign a legal agreement to make repayments if the borrower is unable to do so. They use property they own or savings as security.
The lender holds a charge on the property and can repossess it if repayments are not met.
Savings are kept in an account held by the lender for an agreed period. The guarantor cannot make withdrawals during this time.
The savings 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
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 savings account approved by the lender.
They stay there for an agreed time or until the borrower’s mortgage period ends. Sometimes interest is paid. Other times interest 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.
This could be the case if there's negative equity, for example. Negative equity is when the value of the home is less than the size of the mortgage.
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 and have a wider choice of deals.
Being a guarantor is a long term commitment. Usually, a guarantor will not be released from the mortgage until:
the loan is repaid
the loan-to-value (LTV) 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.
As long as the terms and conditions of the guarantor mortgage are kept to, the guarantor will not be prevented from taking out other loans or mortgages in the future.
It could restrict their ability to borrow more during the term of the guarantor mortgage.
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