Do I Need a Guarantor Mortgage?

What is a guarantor mortgage and what is a parent guarantor?

A guarantor mortgage is for customers that don’t have the ability to buy property on their own. It could be a good option if they have little or no deposit, low income or a poor credit score.

The guarantor is usually a parent – which I suppose answers the second question. But it can also be a family member or a friend. As guarantors, they essentially agree to pay the mortgage if the main borrower cannot.

Do mortgage lenders still accept guarantors and is it easier to get a mortgage if you have a guarantor?

There are still a few traditional guarantor mortgages available. But what’s become more popular is something called Joint Borrower Sole Proprietor, which is very similar. The majority of lenders are doing this type of product with family members and parents.

In terms of how easy it is, as always it depends on your set of circumstances, affordability and your credit score. It is something that we’ve done quite often – they are certainly becoming quite popular.

How does a guarantor mortgage work?

If you are unable to borrow on your own, due to your credit score or your income, a guarantor could help you buy a home.

The lender will basically look at the guarantor’s circumstances – their affordability, income and outgoings and see if they are credit worthy to cover the mortgage payments if you are unable to pay your mortgage at any point.

The guarantor basically makes sure you can make those mortgage payments – if not, they will step in.

What types of guarantor mortgage are there?

The Joint Borrower Sole Proprietor is the most popular one now, but there are others that use savings or property as security. If your guarantor has savings set aside, some lenders may consider that, or use their property – although those options aren’t as mainstream as they used to be.

Will I be able to borrow more with a guarantor mortgage? How much of a mortgage can I get with a guarantor?

It’s all based on affordability. That’s no different from any other mortgage. Most of these mortgages bring two incomes together. They always look at both people’s outgoings and affordability.

Potentially, the parent owns a property or still has a mortgage, and the lender will take that into account within affordability. In terms of how much you can borrow, it’s similar to normal mortgages. People talk about 4.5 times income as a guide, but If you talk to a broker we will give you a specific figure based on your situation.

Can you get a 100% mortgage with a guarantor?

At the moment the majority of mortgages start at 95%. There are one or two 100% mortgages out there, but they don’t have a guarantor option at this stage. It’s likely you would have to put down a minimum of 5% deposit.

Do guarantor mortgages have higher interest rates?

Generally not, it’s based on the loan to value and whether the lender has a specific product for that type of mortgage. But in most instances you get to pick from the lender’s range. We don’t usually have to pay higher rates for these mortgages.

Who is a guarantor mortgage suitable for and how do you qualify for one?

It’s suitable for anyone to a certain degree, but most of the time it’s First Time Buyers looking to get on the property ladder. Maybe they have a smaller deposit or just not enough income to reach what they’re looking for. Maybe they’ve had a bit of bad credit in the past.

Generally, too, it’s about the guarantor and how it fits with them. You can usually only take a mortgage up to a certain age and on a guarantor mortgage, it’s based on the oldest person. So if your guarantor is 60 it will be harder than if they are 40 or 50.

In terms of the person buying, anybody can qualify for the mortgage as long as their guarantor fits the rules.

What documents should I provide for a guarantor mortgage?

It’s no different from a normal mortgage. It will be ID, proof of address, pay slips, bank statements and proof of deposit.

The biggest thing on a guarantor mortgage is that the guarantor has to get separate legal representation. In most instances they will have a legal liability for the property but actually not be on the deeds or the mortgage – they just have the financial responsibility for it. The legal representation is about understanding what risks this can pose to them.

Who can guarantee a mortgage?

It’s family members and friends – parents, grandparents, siblings and friends.

What are the risks of a guarantor mortgage?

The biggest risk is not having legal ownership of that property but financial responsibility for it. If the person that owns the property does not pay the mortgage, you are liable for that, but you have no legal ownership – you’re not on the mortgage deeds.

These mortgages are essentially great, but as someone buying a property with a guarantor to boost your affordability, the likelihood is that you’ve struggled with a normal mortgage lender’s affordability criteria.

So, what does your guarantor mortgage look like on a monthly basis? Are you happy with the monthly costs? That’s something to bear in mind. While it’s fantastic that with your dad’s help you can get a mortgage of £200,000, but actually if most lenders would limit you to £150,000, can you actually afford that extra £50,000?

Obviously the guarantor wants to help you, but they’re just there as a backup. So do be careful.