It’s not easy getting the mortgage you want when you’re a first-time buyer. If you have a bad credit or you don’t have a big deposit you can look for a guaranteed mortgage.
A guaranteed mortgage is as the name suggests, guaranteed by a close family member or a parent. Some mortgages make the guarantor responsible for the whole mortgage, but there are lenders who are willing to take the guarantee for the amount that’s above 75% of the value of the property.
Using a family member’s home as security
One way a parent or close family member can guarantee a mortgage is by using their own home as collateral. The mortgage lender will probably put a charge on the home for a certain amount. If the mortgage isn’t paid the lender can apply to have the charge paid. If the guarantor doesn’t have the money it may mean selling their home to pay the debt.
Open a Savings Account
Another way of guaranteeing a mortgage is to link a family member’s savings to the mortgage. This is called a Family Offset Mortgage. The savings will be refunded, but probably not until at least 75% of the property value has been paid. This could take years. While the savings are linked to the mortgage there won’t be any interest paid.
If your family member prefers to earn interest, then you can take out a Family Deposit Mortgage. Your family member opens a special savings account and deposits a certain amount of money into it. It stays there for a fixed period. If you don’t pay your mortgage during this period, the money is taken out of the savings account.
Finally, there’s the Flexible Family Mortgage. This gives a family member three choices as long as you have a 5% deposit. The mortgage lender will give the buyer 95% of the purchase price as long as the family member either:
- Puts at least 20% of the mortgage into a savings account as security. It also means you will pay a lower rate of interest.
- Using the family member’s home as security as long as there is enough equity available.
- Open an Offset account.
- Talk to a Mortgage Broker
Once a family member agrees to help you, find a mortgage broker. They will have specialist knowledge about Guaranteed mortgages. They will help you to find the right guaranteed mortgage and make the application for you.