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Guarantor Mortgages

Find out how a guarantor mortgage works

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What is a guarantor mortgage?

A guarantor mortgage, also known as a family-assisted mortgage, is a mortgage deal where another person agrees to take on responsibility for your repayments in the event that you can’t pay.

That person is known as the ‘guarantor’ and is usually a family member or close friend of the mortgage applicant. The guarantor won’t own a share of the property and they won’t be named on the deeds. But they must legally agree to be liable for the mortgage repayments if the borrower falls behind.

Guarantor mortgages are a popular choice in the UK for people who, for example, want to help their children get a foot on the property ladder. Guarantors tend to be people in a more stable financial situation than the mortgage applicant. So, lenders are more likely to agree to a mortgage if a guarantor has been nominated. This also means that a guarantor mortgage is easier to get if you have a low credit score or no deposit.

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How does a guarantor mortgage work?

A guarantor mortgage will work just like any other mortgage, as long as you keep making your monthly mortgage repayments. In most cases, a guarantor doesn’t have to do anything at all.

But if you can’t afford your payments or you default on your mortgage, your guarantor is legally liable for those repayments. In this scenario, the lender will ask them to pay or meet the shortfall.

Standard (non-guarantor) mortgages are secured against the property you’re buying. This means that your lender can repossess your home if you fail to make your repayments. But a guarantor mortgage works by also securing the loan against something belonging to the guarantor. This is usually their own property or some of their savings. This gives the lender an extra layer of protection that they’ll get their money back if the borrower defaults.

Here is how it works:

  • If your mortgage is secured against savings, then your guarantor agrees to deposit a sum of money (5–20% of the property value) into a special savings account held by the lender. It still earns interest, but they can’t access the money until most of the mortgage is paid off

  • If your mortgage is secured against property, then the guarantor agrees to put up their own home as collateral. Usually, the guarantor will need to own all or most of their home outright before they can use it to secure another mortgage

Who is a guarantor mortgage suitable for?

A guarantor mortgage is suitable for:

  • A borrower with a low income

  • Someone who wants to buy a property that costs more than lenders think they can afford

Who can guarantee a mortgage?

Anyone can be a mortgage guarantor. It could be a parent, grandparent, another family member, or even a close friend. A guarantor can be in work, self-employed, or retired. But for a guarantor mortgage to work, the guarantor usually needs to be in a stable financial situation.

Lenders will carefully assess anyone before they’re approved as a guarantor. Here’s what they’re looking for:

  • Someone at least 21 years old

  • Someone who either owns their property outright or has a high level of equity in their property

  • A high-enough income to cover the cost of mortgage repayments if necessary

  • A strong credit score

Many lenders also have maximum age requirements for guarantors, as mortgages will typically last around 25 years. Usually, it’s hard to get a guarantor mortgage if your guarantor is, say, over 75 years old.

Lenders also want to make sure that the guarantor fully understands the risks involved. For this reason, they might want to see some proof that your guarantor has taken specialist legal advice from a solicitor before they’ll be approved.

What are the risks of a guarantor mortgage?

Guarantor mortgages are designed to help people buy property when they’re in a less secure financial situation. However, they work by spreading a lot of that risk to the guarantor.

Before you agree to a guarantor mortgage, make sure you’re aware of the risks involved:

  • 1

    Damage to your credit score

    If you’re a guarantor, it means you’re tying your credit score to another person’s loan. If the person you’re guaranteeing fails to make their mortgage payments on time, the lender will come to you for the repayments. Your own credit score could go down.

  • 2

    Changing circumstances

    Guarantors are expected to be in a good financial position – but something unexpected could always happen. Mortgages are long-term commitments, and could become an extra burden if your financial situation changes as a result of job loss or other factors.

  • 3

    Access to your money

    If you secure a guarantor mortgage against savings, those savings won’t be available to the guarantor until most of the mortgage has been paid off. This means you could be locking your money away for decades, and you won’t be able to withdraw it if you need some emergency cash.

  • 4

    Risk to your property and relationship

    With a guarantor mortgage secured against property, there’s always the worst-case scenario that the lender might repossess the guarantor’s home if there’s no other way to get their money back. There’s also the emotional side to consider. A guarantor mortgage creates a financial relationship between family members; and if the worst happens, it could put a serious strain on your family.

What happens if my guarantor is unable to make repayments too?

Your guarantor is expected to be in a secure enough financial position to cover your mortgage repayments if you can't for some reason. But what if they can’t afford it either? Your lender will usually be willing to work out an arrangement, including extending your mortgage term to bring down the monthly repayment costs.

But if you still miss your payments, the lender will do whatever’s necessary to recover their money. That may include taking your guarantor’s savings or their home.

Things may take a different turn if your guarantor has the funds to make the repayments, but refuses to do so. In this case, they would be in clear breach of their contract and it’s likely that legal action will be taken.

First of all, the lender will get in touch with the guarantor via email or phone call. If the guarantor objects to making a repayment when it’s due, a warning letter of pre-court action will be sent. Court proceedings will then begin 14 days later, provided that the payment is still not made during this period.

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Compare mortgages with MoneySuperMarket

MoneySuperMarket doesn’t currently compare guarantor mortgages. But we can still help you search a wide range of mortgages from some of the UK’s leading providers. It means that even without a guarantor, it’s still possible to find a great deal to help you get that first step on the property ladder.

You’ll be able to see at a glance which mortgages you’re likely to be eligible for. Then, you can sort them by monthly repayments, interest rates, loan-to-value ratio, and any extra fees. It’s simple and completely free – try it now and see how much you could save. Searching and comparing in this way won’t affect your credit score.

Your home could be at risk if you cannot meet the repayments on a mortgage.

Yes, in fact, parents are commonly nominated as a guarantor in guarantor mortgages. These mortgages are a useful way for parents to help their children get a property of their own, even with a lower income or a smaller deposit. But for the mortgage to go through, the parent’s financial situation needs to be strong, and they’ll need to meet all the conditions above.

In most cases, yes. Your guarantor is likely to secure your mortgage through savings or property, meaning that their employment status or income should not have an impact. The only thing to bear in mind is age, as lenders may be less keen on giving out money if your guarantor is elderly.

That said, every lender and mortgage deal is different. So make sure to ask your mortgage provider and find out about their terms and conditions.

It’s technically possible to get a guarantor mortgage for a buy-to-let property. However, it’s rare and most lenders don’t allow it.

In general, the repayments for buy-to-let properties are much lower, since you’re only usually paying off the interest on your loan. It’s also a lower risk because the mortgage will typically be covered by the tenant’s rent. This means there’s less chance you won’t be able to make your repayments if you lose your income.

Guarantor mortgages let you borrow more than you could with an ordinary mortgage based on your own financial status. In fact, you can use a guarantor mortgage to borrow 100% of a property’s value, so you can buy a new home with zero deposit. That said, in most cases, the lender will require you to put down a cash deposit.

Your deposit means that the amount they’ve lent you is less than the value of the property. Therefore, there is less risk of negative equity (when the loan on your property is bigger than the house is worth). But with a guarantor mortgage, your guarantor is putting up their property or savings as security. This works as a substitute for the deposit, which allows you to get a property without having to put down anything upfront.

It’s not something anyone wants to think about. But mortgages can last for decades and there’s a chance your guarantor might pass away during its term. If your guarantor dies, there are a few things that might happen:

  • You might have to get another guarantor

  • If your financial situation has improved and you’ve paid off a chunk of your mortgage, you could remortgage without a guarantor

  • If you’re a named beneficiary in your guarantor’s will, you may be able to use some or all of an inheritance to pay the mortgage

First of all, it is important that you and your guarantor have a good, solid relationship. You also need to make sure you both understand the financial commitments and possible repercussions. If you find yourselves in a tricky situation and are struggling to repay the mortgage, both your credit score and that of your guarantor could be negatively affected as a result.

Also, it’s worth thinking about your future earning prospects, especially if you’ve just started your career. If your salary has not increased enough by the time you need to remortgage, you may still need your guarantor to stay involved.

Finally, it’s always wise to scour the market for the best available options or use a mortgage broker. This way, you’ll be able to find a guarantor mortgage deal that suits your personal circumstances.