Guarantor mortgages

Enquiries from people looking for a mortgage with the support of a guarantor excite us. It’s often people taking a tentative first step onto the property ladder needing help. Or, it’s people who are keen to act as a guarantor to a close family member.

Here, we break down what guarantor mortgages are and how they work.

The guarantor mortgage: a concise guide

A guarantor mortgage is also known as a family-assisted or springboard mortgage. It’s a home loan for buying a property when you don’t have the necessary deposit. They can also be an option if your personal or financial circumstances otherwise deter lenders.

They empower a family member to help (usually) close relatives get onto the property ladder. The relation offering the assistance is the guarantor and can be a (step)parent, grandparent, or blood relative.

The guarantee is that the guarantor commits to covering repayments if the borrower can’t. There are degrees by which lenders will tolerate missed repayments. Each lender is different, so discuss your situation with an advisor to be sure you get the right lender for your situation.

Does the guarantor own the property?

The guarantor is not named on the property deeds nor do they own a share of the house. Their role is to sign a legal contract with the lender to cover repayments, thus reducing risk.

With that guarantee in place, the potential borrowing is 100% of the full house sale price. And, in the main, guarantor mortgages are the only way you can buy a house with zero deposit.

That’s because 100% mortgages are becoming fewer and further between. Lenders today expect you to find a deposit of 5%, or even more. The most competitive mortgage interest rates begin at 85% LTV (15% deposit/equity).

More security, the lower the risk, thus the lower the repayments

The more a guarantor puts down, the lower the interest rate on the loan. That means smaller repayments, which could help the borrower save for a deposit for their own mortgage.

But balance is critical. The borrower shouldn’t overstretch themselves. Mortgages should enhance lives, not make people prisoners. But there are ways to save for a deposit, even when repaying a guarantor mortgage!

Who is a guarantor mortgage suitable for?

A guarantor mortgage is suitable for you if you:

• Have no deposit or a small deposit
• Have low earnings
• Are yet to build up a sufficient credit history or have a low credit score
• Want to buy a property that costs more than lenders think you can afford

What are the characteristics of an acceptable guarantor?

As we’ve mentioned, a family member can act as your guarantor. Lenders accept only blood relatives, like parents, a brother, sister, grandparents or even step-parents.

On rare occasions, a few select lenders may consider close friends. But a close relative offers much greater security. A guarantor also needs to satisfy other lender conditions. They must:

• Own their own property or have enough equity in it to meet the lender’s requirements
• Earn enough/have enough saved* to help cover repayments if the borrower cannot pay
• Have an excellent credit history and score
• Take legal advice; lenders will want to see written evidence from a solicitor, or equivalent

What are the potential risks?

Most guarantor mortgages use the guarantor’s home as ‘security’ against the loan.

It’s important that the guarantor and the borrower maintain the mortgage repayments. If they don’t, the lender can repossess the property acting as security.

*Alternatively, some lenders will accept a lump sum set aside in a savings account as security.

The guarantor sets the agreed sum aside in a separate account, but cannot draw from it. It has the sole purpose of security and is used by the lender if the borrower misses payments.

Legal advice

Lenders ask guarantors to seek legal advice for a reason. They must be aware of their legal obligations and responsibilities.

The guarantor has a legal responsibility to meet mortgage repayments if the borrower can’t. If they also can’t, they too risk losing their own home and damaging their own credit score.

Can I stop being a mortgage guarantor?

You don’t have to be a guarantor for the full term of the mortgage. Over time, the borrower’s personal and financial position should improve.

Once they’re more secure, approach the lender to release you from your legal agreement. But they will want to see proof that the borrower’s financial position has changed.

What is the maximum age for a mortgage guarantor?

Some lenders offering guarantor mortgages set age limits at 60 for a guarantor. But, with lifetime mortgages, the industry is changing its perspective on age.

Some specialist lenders have no maximum age limit for a guarantor. That said, they may insist that the mortgage term end by the time the guarantor reaches 75-80.

How many guarantors can you have on a mortgage?

Lenders are strict on the number of guarantors per mortgage, restricting it to two. Many will also insist that they are the parents, grandparents or step-parents of the borrower.

How can Mortgage Quest help?

Our advisors are passionate about helping all first-time buyers get on to the property ladder. Borrowers with guarantors are no exception, nor treated with any less enthusiasm or bias.

Mortgage Quest is 100% independent so has access to the entire mortgage market. We ensure you’re paired up with the right lender based on your needs, goals and circumstances.

Mainstream/High Street providers aren’t always the best option if you have little or no deposit. Many withdrew guarantor mortgages soon after 2010 and can offer you little worthwhile.

If you have any questions or need to speak to an advisor call us on 020 421 7998 or send us your enquiry here. Getting the right advice from the outset could make all the difference; that, we guarantee!