Do I need a guarantor?

What is a guarantor mortgage? What is a parent guarantor?

A guarantor mortgage is a type of loan where someone else, often a family member, agrees to take on financial responsibility if you’re unable to keep up with your own repayments. Basically, it’s a mortgage that’s supported by somebody else – the guarantor.

If things unfortunately went wrong, the guarantor would be equally liable for the mortgage. This setup is often used when the borrower may have slightly lower income than they need for the mortgage they want; or a small deposit or limited credit history makes it difficult to get approval for a loan on their own. The guarantor is then brought in as support.

A parent guarantor is one of the most common types. In this case, a parent agrees to support the mortgagee – their child. That gives the lender more confidence that the loan will be repaid if the borrower runs into trouble.

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

Many lenders do still offer guarantor mortgages. They’re probably not as common as they were. Several building societies, high street banks and niche lenders continue to accept them.

Having a guarantor can definitely improve your chances of getting approved, especially if you have a smaller deposit, a modest income or a less than perfect credit score.

The guarantor’s financial backing reduces the lender’s risk, and may even allow you to borrow more or access better terms.

How does a guarantor mortgage work?

A guarantor mortgage follows a simple structure that comes with serious responsibilities for the guarantor themselves.

The first step is establishing that the person wanting a mortgage needs support. You might not meet the lender’s criteria on your own, maybe due to income levels, credit history or deposit size. So you need support.

Step two is to find a guarantor to get involved. Usually this is a parent or a very close relative. The guarantor agrees to cover the mortgage if the mortgagee is unable to. They’re responsible financially if things go wrong.

Step three is for the guarantor to offer security – in the form of their own property, collateral, or savings. Some form of security offer is made.

Step four is to confirm that the guarantor doesn’t co-own the property, but they would be legally liable for missed payments.

In step five, the lender completes financial checks. Lenders assess both you as the mortgagee and the guarantor, looking at your finances including income, debt and credit history.

Step six is access to better mortgage terms. With a guarantor you may be able to qualify for a larger mortgage, a lower deposit requirement, or possibly even improved interest rates.

Then, step seven is confirming the risks for the guarantor. If the mortgage defaults, your guarantor may need to step in. That could potentially put their savings or home at risk if payments were continually missed.

The last step, step eight, is an exit strategy. Provided everything is going well and payments are being made to the lender, you’ll be thinking about getting the guarantor out of the deal. Generally, once you’ve paid off a certain proportion of the mortgage and built up equity, the lender may release the guarantor from the agreement. Obviously, that’s a really positive position to be in.

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

Yes, a guarantor can help you borrow more than you might be able to qualify for on your own. They do that by providing additional financial security so that lenders feel more comfortable offering a higher loan amount.

How much you can actually borrow depends on both your financial situation and that of your guarantor. In some cases, you may be able to borrow more, sometimes up to 100% of the property value, particularly if the guarantor’s assets are used as security.

So there’s no fixed amount that you can borrow. It’s down to individual circumstances, but with the support of a guarantor, you could potentially buy with less deposit and borrow more money.

Can I get a 100% mortgage with a guarantor?

Potentially, yes. Some guarantor mortgages allow you to borrow the full purchase price of a home without needing a deposit. This does usually require strong financial backing from the guarantor, through either their savings or property equity.

It’s a very individual assessment. If you’re looking at this route, speaking with a broker like myself will really help to assess whether that’s feasible. It’s also subject to what products are around at any point in time.

Do guarantor mortgages have higher interest rates?

Yes, generally guarantor mortgages will come with higher interest rates compared to standard loans. That’s because they do carry more risk for the lender.

There’s also less competition in this part of the market, which means those lenders will potentially charge a little more for the facility. Rates can be also influenced by the size of the loan secured by the guarantor, especially if it’s a high Loan to Value.

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

A guarantor mortgage can be a helpful option for many different types of buyers. The most common is probably First Time Buyers, but it could equally suit borrowers with low or unpredictable incomes, those with a limited or poor credit history, or applicants with a small or zero deposit.

To qualify, the borrower must show they can afford the repayments with the guarantor’s backing. It’s about proving you can afford the mortgage, not just in your own view but from the lender’s perspective.

The guarantor must be a UK resident and currently over the age of 21. Generally, they will need to be under 75 at the end of the mortgage term. The lenders like guarantors to have a strong credit history and show stable income and or savings, and often, lenders expect the guarantor to have their own home or significant equity within a property.

What documents should I provide for a guarantor mortgage? Any differences here?

Not really. It’s the standard documentation that lenders generally require. Typically that means proof of identity and evidence of income via pay slips, tax returns, bank statements and/or proof of savings. They also request details of any existing debts or financial commitments.

If property is being used as security, we need the property details and proof of the equity. Both the applicant and the guarantor also undergo a full credit check as part of the lender’s affordability assessment. It’s very similar to applying for a standard mortgage.

Who can guarantee a mortgage?

Typically a guarantor needs to be a UK resident, over 21, under 75 at the end of the mortgage, and able to show sufficient income or assets to cover the loan if needed. They also need to be financially secure with good credit.

Generally, guarantors are parents or close family members. Some lenders may consider relatives or trusted friends, but that’s less common.

What are the risks of a guarantor mortgage?

Being a guarantor is a serious legal and financial commitment. As we’ve highlighted, if the borrower can’t repay the loan, the guarantor is definitely on the hook. They may be asked to cover missed payments, or even indeed repay the loan in full. There is the risk of potentially losing their own assets, like savings or property, if that’s used as security.

Another potential downside is an impact on the guarantor’s own ability to borrow. There could be damage to the guarantor’s credit score if the borrower defaults. There would also be legal complications and stress if things go wrong.

These risks can appear very negative, but when you’re acting as a guarantor for somebody else, it’s helping somebody achieve something they couldn’t on their own. Lenders usually request that guarantors undertake independent legal advice to make sure they’re aware of the potential risks.

How can a broker help with guarantor mortgages?

I would always advocate speaking with a broker if you need assistance. With more individual circumstances like guarantor mortgages, we’re very used to speaking to people and finding solutions. Speak to a professional broker and we’ll help identify the right approach for you.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.