They are a good way to get on the property ladder if your income isn’t sufficient enough, or you have no deposit, factors that would normally count against you and see lenders decline your application.
How does it work?
A guarantor does not own a share of the property, nor do they have to contribute to the mortgage. They simply have to sign a legal agreement confirming that they are liable for the repayments if you default.
This confirms to the lender that they are liable, and usually a guarantor also uses their own property is security. This means that if you default on too many payments, the lender could repossess the guarantor’s property.
Another option sometimes sees the guarantor put a lump sum of money into a savings account held by the lender. The guarantor can then not withdraw it until you have paid off a certain amount of your mortgage.
A guarantor can be a friend or relative, although some lenders will only accept parents or step-parents or grandparents.
The guarantor needs to:
own their own property, or hold enough equity in it so satisfy the lender’s requirements
have a high enough income to cover repayments if needs be, as well as paying off their own mortgage
have a good credit record
Why get a guarantor mortgage?
A guarantor mortgage can be used if you have little or no deposit, are a first-time buyer looking to get on the property ladder, have a low income, or have a poor credit record that means most lenders would decline your application.
How much can I borrow?
As usual, the amount you can borrow depends on your financial circumstances such as credit record and affordability, but the amount you can borrow will increase due using a guarantor mortgage.
Lenders can include the income of the guarantor in their calculations, meaning you may be able to get a mortgage on a property you usually wouldn’t be able to afford.
Some lenders even let you borrow 100% loan-to-value, which means you’ll need no deposit, making it easier to get onto the property ladder.
What else is there to consider?
You should take the time to consider what will happen if you miss a repayment.
Each lender has a different way of dealing with you defaulting on your repayments, but it can get a serious as the lenders taking some money from the guarantor’s saving account or even having their property repossessed.
For advice on getting a guarantor mortgage, speak to one of our expert advisers who will be able to help you with the next steps.