Guarantor Mortgage

guarantor mortgage

This page was last updated on 1 July 2021

Guarantor Mortgage In 2021

This article guides you through the ins and outs of guarantor mortgages. It provides information on:

  • how guarantor mortgages work
  • who can be a guarantor and the mortgage lender conditions they must meet
  • who might be interested in a guarantor mortgage
  • the requirements for a deposit with a guarantor mortgage
  • the costs associated with a guarantor mortgage
  • when the guarantor can be removed from the mortgage
  • using a guarantor mortgage for first time buyers and pre-existing homeowners
  • the potential risks involved in a guarantor mortgage
  • who offers guarantor mortgages

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

 

What is a guarantor mortgage?

Guarantor mortgages are also known as family offset mortgages or a family assist mortgage. They are loans used for the purchase of a property just like any other type of mortgage.

The difference is a parent or close family member acts as a guarantor for the loan. This means they agree to meet the mortgage repayments if the homeowner cannot. This means the family member effectively takes on some of the risk of the loan and it becomes a joint mortgage.

Here is a video that you will find useful.

How can having a guarantor affect my chances of getting a mortgage?

Getting a guarantor mortgage may make property ownership available to people with income or a bad credit record. 

A guarantor loan works in much the same way as an equity loan and uses the guarantor’s property, or sometimes savings, as security against the loan. This means that the mortgage provider will receive the monthly payment, regardless of whether the homeowner can pay.

This loan gives parent(s) the opportunity to help their child get onto the property ladder without needing to lend them a lump sum for a deposit. 

For a homebuyer who is confident that they have a consistent income, this is a relatively low-risk option.  Many young people don’t want to borrow money from their parents. They may already pay rent at the same cost as or less than a monthly repayment. This loan overcomes the difficulty of the stringent lender conditions. 

It is always recommended you seek mortgage advice from an independent mortgage broker prior to obtaining a loan. You must factor daily living costs such as car insurance into your calculations. 

Who can be a mortgage guarantor?

Different lenders have different criteria. Some mortgage lenders will allow your guarantor to be any family member.

Other lenders may restrict your options to close family members, such as a parent, grandparent, or step-parent. 

Your guarantor will need to own their property outright, or have enough equity within it to satisfy the lender. 

Your guarantor’s income must be able to cover their own mortgage repayments and spending, as well as your missed repayments. 

A strong credit record is also required to prove to the lender that your guarantor is financially stable. 

Your guarantor should get independent legal advice during the mortgage application process. This should ensure they are fully aware of all the risks involved.

Many lenders require proof that legal advice has been sought.

How old must I be to act as a guarantor? 

Your guarantor must be at least 21 years old for you to get a guarantor mortgage. Some lenders also set an upper age limit for guarantors. Most lenders make a decision based on the guarantor’s personal financial circumstances.

You should speak to an independent mortgage broker for more information on this. 

"Guarantor mortgages are also known as family offset mortgages or a family assist mortgage. They are loans used for the purchase of a property just like any other type of mortgage."

What does your guarantor have to do?

Your guarantor must sign a legal contract acknowledging their responsibility. 

You will have a joint borrower, sole proprietor mortgage. This means your guarantor does not own a share of your property and is not named on the title deeds. This means you still class as a first-time buyer. 

The lender will use one of the below as security against the loan:

  • The guarantor’s home. This means the lender could repossess their home to cover the cost of your repayments if you are consistently defaulting on payments. 
  • The guarantor’s savings. This means your guarantor will place a set cash amount in a savings account held by your lender. This money is held until a set time period, or until you have paid off a set amount of your mortgage.

Your guarantor’s savings will usually still earn interest. Once the homebuyer has built up the amount of equity set by the lender, the lender will return the savings to the guarantor.

family offset mortgage

Are they responsible for all of your mortgage?

Your guarantor may only be responsible for part of your mortgage.

For example, you may borrow a mortgage amount of 100% of the property value but your guarantor may only be responsible for 25% of that. So, if you bought a property for £400,000, your guarantor would only be liable for £100,000.

Do guarantors get credit checked?

Yes, guarantors are credit checked and lenders will expect a high score and good credit history. You have more chance of the mortgage being approved with a higher score. 

However, you should note that only a ‘soft credit check‘ is conducted meaning the search will not affect your guarantor’s credit rating. No company looking at the file in future will be able to see this search. 

Who do guarantor mortgages suit?

With a guarantor, you may be able to get a mortgage in circumstances when you would not normally meet a lender’s minimum requirements for a loan. For example:

  • if you have no deposit or a small deposit that does not meet the minimum criteria of the lender;
  • if you have a low income or bad credit and this is preventing you from being offered a mortgage independently;
  • if you have no credit score, for example you have only just moved to the UK and therefore you are not able to prove your financial health to a UK lender;
  • or if you want to purchase a property the lender deems unaffordable for you.

In general, guarantor mortgages are most suitable for a first-time buyer who is most likely to meet some, or all, of the above conditions. They are also a good option for those with another unsecured loan, such as a student loan or credit card. 

family mortgage

Lenders are unlikely to agree on a guarantor mortgage alongside another scheme like Help to Buy or shared ownership. Although it is legally possible for this to happen, most lenders are not prepared to do this. 

Guarantor mortgages can also suit those who are unable to find a mortgage with a mainstream lender. The criteria for mainstream lenders is often more stringent meaning you need a higher income or larger deposit for them to offer you a mortgage. Having a guarantor may mean a mainstream lender is able to offer you a guarantor mortgage. 

An independent financial adviser should be able to advise you on your credit score

How big a deposit do I need?

Whilst you usually need at least a 5% deposit to purchase a property using a mortgage, you do not always require a deposit with a guarantor mortgage. Some guarantor mortgage lenders offer guarantor mortgages with a loan to value (LTV) of 100%. This means your mortgage covers the entire purchase price of your home. This means you do not have to provide a deposit.

For example, if you wish to purchase a property for £250,000, your mortgage value could also be £250,000.

However, please note that most lenders do still require at least a 5% deposit even with guarantor mortgages.

It is also important to remember that house prices can decrease. Should this happen, if you have a LTV of 100% you may find yourself in negative equity.

guarantor income

How much do guarantor mortgages cost?

All mortgages come with additional costs and guarantor mortgages are no different. Additional fees which you will have to pay upfront may include: 

  • A mortgage payment (a lump sum you pay to the lender at the start of the mortgage term)
  • Interest fees
  • Valuation fees (money paid by you to the lender for them to carry out a property valuation)
  • Solicitor fees
  • Mortgage broker or mortgage adviser fees

When can your guarantor be taken off the mortgage?

Your lender will decide when you no longer require a guarantor. The lender may set a time period (for example 5 years) before your guarantor can be removed. 

Instead, they may set an equity level to be reached before your guarantor can be removed (for example, 20% of the mortgage value). The lender is permitted to extend this if you miss your monthly mortgage payments. 

You are not able to remortgage to a loan without a guarantor until the lender agrees. They must be happy that you have met the initial agreed conditions of the loan, and your financial situation is stable. 

Once you have met these conditions, you are free to remortgage your property and move to a traditional mortgage. This may mean you have a greater choice of mortgages with more competitive interest rates.

At this point your guarantor will no longer be liable for your mortgage payments. However, please be aware that some guarantor mortgage deals are only available for initial home purchase. 

There may be limited choice to remortgage should you still require a guarantor in future. This may mean you get trapped into a high-interest rate for longer than you had hoped. 

Can you get a guarantor mortgage to move house if you already own your own home?

Guarantor mortgages are usually aimed at first-time buyers. They are most likely to struggle to move onto the property ladder due to low income, bad credit history, or lack of deposit. 

However, some lenders will offer guarantor mortgages to pre-existing homeowners in certain situations. This may apply if you wish to purchase a more expensive property which a lender deems unaffordable to you.

You should check with different lenders on their available guarantor mortgages. 

mortgage payments

What are the potential risks involved in a guarantor mortgage?

Your guarantor has signed a legal agreement acknowledging they will make your repayments if you are not able to.

If your guarantor is also unable to make a loan repayment, there are certain risks. They could damage their credit rating, lose a proportion of their savings, and even lose their own property.

Your guarantor should speak to a financial adviser before agreeing to act as your guarantor. 

Please note that if your financial circumstances change and you wish to pay back your mortgage early, there may be an early repayment charge.

What if your guarantor dies?

This depends on the lender and you should check with them before you apply. Some will insist you add a new guarantor. Others will allow your guarantor’s estate to make some of the repayments on your mortgage.

You should seek legal advice in the event of this happening. 

What happens if a guarantor can’t pay?

Mortgage lenders have very strict conditions around who they will allow to be a guarantor. They will not accept anyone with poor credit history, therefore this does not usually happen.

If the guarantor’s financial situation changes dramatically this may mean they are unable to make the repayments. In this case, the lender will need to make inquiries into how this has come about.

By not meeting the repayments, the guarantor is effectively breaking the contract. This can have serious consequences. This can include the guarantor losing their own home. All family members should be aware of the financial risk to them before agreeing to act as a guarantor.

Who offers guarantor mortgages?

The coronavirus pandemic has made it much harder to access a guarantor mortgage. 

However, the mortgage market is constantly changing. You should continue to look if you think a guarantor mortgage is the right mortgage option for you. Please make sure a lender is authorised by the financial services register before taking out a loan with them. 

You can also talk to an independent mortgage broker who may be able to secure you a better mortgage deal. For example, they may be in contact with a specialist lender and therefore are often a good way to find the best guarantor mortgage. 

You should also check other options for property ownership. Other schemes such as help to buy, shared ownership and the mortgage guarantee scheme may be better for you.

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – katy@helpandadvice.co.uk

LinkedIn – Connect with me

Learn More About Mortgages In The UK

How do mortgages work in the UK?

Buying a home or land is expensive. A mortgage is a financial product that helps people purchase their own home or land.This is especially true for a first time buyer, as it might be the only route onto the property ladder.

The minimum credit score for a mortgage

ou can still be approved for a mortgage to buy a property if you have a poor credit score. However, someone with a poor credit score will probably have a higher interest rate than someone whose credit score is good. Buyers with a low credit score may also need to pay a bigger deposit.

fixed term Contract Mortgages

A fixed term contract is a way of describing certain types of employment. If your current employment contract is due to end after a certain period of time, or after a specific piece of work is complete, you are likely on a fixed term contract. 

how long does a mortgage application take?

After sending off the final application waiting for the decision can be frustrating. Many prospective homeowners ask ‘how long does it take?’ but the truth is the mortgage approval process is always different for each customer.

how long does conveyancing take?

The entire conveyancing process will normally take anywhere between 8-12 weeks, however you should be prepared for this to take much longer depending on your circumstances and wider factors. This articles explores what the timescale involves.

Mortgages if You are bankrupt

There is no hard and fast rule when it comes to what lenders will accept your mortgage application if you want to get a mortgage after bankruptcy. They will lend to discharged bankrupts and consider each case individually. 

what stops you getting a mortgage?

Everyone wants to get the best deal when it comes to buying a home and getting a mortgage when they buy a home. However, being too ambitious can lead to your application being rejected. 

how much do mortgage advisors charge?

Fees for mortgage brokers can be off-putting. A mortgage is an expensive financial product, and often buyers want to save as much money as possible. This might limit their options when it comes to using a mortgage broker.  However, not everyone advisor charges a fee.

IVA Mortgage

When you have an IVA, mortgage acceptance is still possible. However, involuntary agreement mortgage lenders can be hard to find. Typically, a high street company will be more less keen to give you a mortgage. 

Frequently Asked Questions

What is a guarantor mortgage?

Guarantor mortgages are also known as family offset mortgages or a family assist mortgage. They are loans used for the purchase of a property just like any other type of mortgage.

The difference is a parent or close family member acts as a guarantor for the loan. This means they agree to meet the mortgage repayments if the homeowner cannot. This means the family member effectively takes on some of the risk of the loan and it becomes a joint mortgage.

Who can be a mortgage guarantor?

Different lenders have different criteria. Some mortgage lenders will allow your guarantor to be any family member.

Other lenders may restrict your options to close family members, such as a parent, grandparent, or step-parent. 

How old must I be to act as a guarantor? 

Your guarantor must be at least 21 years old for you to get a guarantor mortgage. Some lenders also set an upper age limit for guarantors. Most lenders make a decision based on the guarantor’s personal financial circumstances.

Can you get a guarantor mortgage to move house if you already own your own home?

Guarantor mortgages are usually aimed at first-time buyers. They are most likely to struggle to move onto the property ladder due to low income, bad credit history, or lack of deposit. 

However, some lenders will offer guarantor mortgages to pre-existing homeowners in certain situations. This may apply if you wish to purchase a more expensive property which a lender deems unaffordable to you.

Share this page

Share on facebook
Share on twitter
Share on email
Share on linkedin