Can you have a guarantor on a mortgage?
A guarantor mortgage can help you to get on the property ladder with no deposit, adverse credit history or low income. They aren’t always called guarantor mortgages. You might see them referred to as a family mortgage or even a springboard mortgage.
They work by allowing the mortgage applicant to name an additional person as a kind of “back up” on their mortgage application. This person will have to be a homeowner. Parents will often do this for their children in order to help them buy their first home.
If you are unable to keep up with the mortgage repayments, then the obligation would fall on your guarantor. If they are unable to keep up with the payments, you could both lose your homes.
What does a guarantor have to do?
They will have to be a homeowner and be willing to vouch for you. This means putting their own home up as collateral against your mortgage and your future mortgage payments.
They won’t be listed on the deed and they do not own a share of your property. Instead, they will have to sign a legal document agreeing to make your mortgage payments if you fall behind.
They will usually be asked to offer a security deposit, usually in the form of their own home or their savings. A lender might ask them to put a lump sum into a savings account owned by the lender. They will be unable to touch this money for a set period of time, usually until the borrower has paid off an agreed amount of the mortgage.
Do I need a guarantor?
If you have been turned down for a mortgage, you might want to consider applying with a guarantor. Lenders are more likely to accept your application if you have a guarantor on your side. If any of the following apply to you, you should consider a guarantor.
- You can’t afford to save a deposit
- You only have a small deposit (less than 5% of the property value)
- You are a first-time buyer
- You are on a low income
- You want to borrow more than lenders think you can afford
- You have an adverse credit history
Who can I ask to be my guarantor?
When choosing your guarantor, it’s important to think carefully about who to ask. Most lenders will accept a family member or even a friend to be your guarantor, provided they meet the criteria and are willing. However, some lenders will only accept applications with a guarantor who is your parent, grandparent or step-parent.
If the relationship breaks down, there is no way to end the agreement. The guarantor has to feel confident in the lender’s ability to continue making payments. However, they should also be comfortable making the payments for them if required. It’s not a good idea to be a guarantor for someone if you can’t really afford to make the payments.
What requirements are there for the guarantor?
The most important thing is that your guarantor needs to fully understand what they are agreeing to and what their obligations are. Their own home could be at risk if the borrower fails to keep up with their payments. Your guarantor will need to...
- Own their own property outright, or have enough equity in it to be able to meet the lender’s threshold. In most cases, the guarantor will need to own at least 30% of their property. This means that a new homeowner is unlikely to be eligible.
- Have enough income to cover their own expenses, plus the additional mortgage payments if required. It’s important not to stretch your income just to meet the lender’s requirements.
- Have a good credit history. A poor credit history could be a sign to banks that your chosen guarantor might struggle to make the mortgage repayments. Therefore they will look for someone with a good history of repaying debts on time.
Next steps…
If you’re ready to start thinking about your options for a guarantor mortgage, it’s always best to seek the advice of a specialist mortgage broker. Our team can help you to navigate the guarantor mortgage process with ease. Get in touch today to find out if you need a guarantor, or if another mortgage type might be more suitable for your circumstances.