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Mortgage Advisor & Director
What is a guarantor mortgage?
A guarantor mortgage is a mortgage with another person named on the mortgage agreement. If you fall behind on mortgage payments, this person must make them on your behalf. It offers the lender a safety net if they’re not convinced you can afford the mortgage you’re applying for. This person will not own any equity in the property nor have any right to it.
Who might apply for a guarantor mortgage?
Guarantor mortgages are often considered by people who:
- Have only a small deposit, or none at all
- Have a financial history that means many lenders will reject their application
- Who want to borrow more than a lender is willing to lend, such as people with a low income, or with large families
- First time buyers who have no equity in a property to contribute to a deposit
Who can be a guarantor?
Because of the serious obligations of being a guarantor, many lenders will only allow close family, such as parents or grandparents to be a guarantor. Some may allow friends or more distant relatives (such as aunts, uncles or cousins), though this is less common.
The guarantor also needs to offer security on the loan, such as their own house (either entirely or a proportion of the property), or their savings. Different lenders will have different requirements. If the guarantor is offering their own property as security, they will need to be mortgage-free, or have paid off a minimum percentage of their mortgage. The amount will differ from lender to lender.
The guarantor also needs a strong credit history and to be able to prove a stable source of income - similar to the affordability checks of any mortgage applicant. Some lenders will require that the guarantor takes out independent financial advice to ensure that they understand their obligations and the risk they are taking on.
What are the advantages of a guarantor mortgage?
With a guarantor mortgage, you can get a foot on the property ladder without a large deposit. This allows you to save up for the other fees associated with moving home, such as solicitors costs, surveys and moving costs.
Even if you have a deposit available to put forward, by naming a guarantor on the mortgage, you may be able to borrow more than you would be offered otherwise. This can help if you need a property of a certain size or in a more expensive location.
A guarantor offering their property for security does not stop the guarantor moving house or selling their property - but the lender will retain the stake put forward as part of the mortgage agreement until the borrower has fulfilled the terms they agreed to in removing the guarantor.
What are the disadvantages of a guarantor mortgage?
If you miss too many mortgage payments, your guarantor is at risk of losing their own home or their savings, whichever was put down as security for the loan.
If they put forward their savings as security, they will not be able to access these savings under any circumstances until you have paid off a predetermined amount of your mortgage. This might be measured as a loan-to-value ratio (e.g. 20%), or it might be measured in years.
You cannot remortgage to a deal without a guarantor until you have met the lender’s requirements for removing the guarantor. This may prevent you from accessing the best deals on the market when your fixed rate period ends. And if you miss repayments, it’s at the lender’s discretion whether they decide to extend the amount of time that a guarantor is required on the mortgage.
Can you remortgage from a non-guarantor mortgage to a guarantor mortgage?
Yes, although this is less common. Most guarantor mortgages are aimed at first time buyers who would have difficulty being approved for a normal mortgage. Some lenders will only consider first time buyers.
However, some lenders will consider guarantor mortgages for existing homeowners looking to upsize to a more expensive property.
Is the guarantor responsible for 100% of the mortgage?
Some lenders will now offer deals where the guarantor is only responsible for a predetermined amount of the mortgage.
For example, the guarantor may only be responsible for 20% of your mortgage. With a £250,000 mortgage, if you failed to make repayments, the guarantor would only be responsible for £50,000. This can relieve some of the risk for the guarantor and be the difference between losing their home and not losing their home.
What happens if your guarantor dies while they are on your mortgage?
This differs from lender to lender and it’s important to review these circumstances in advance. Some will require you to find another guarantor. Others will take the security from the guarantor’s estate.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
