For many first time buyers, the biggest hurdle they face is finding the money to put down as a deposit.
Not having a deposit can put many lenders off, meaning they could struggle to get a mortgage offer accepted. However, by being someone’s mortgage guarantor, you could still help them get the keys to their dream home. Just make sure you’re clued up on exactly what it involves, as there are some risks that you need to be aware of.
What is a guarantor mortgage?
As a mortgage guarantor, you're guaranteeing that you can make the repayments on the borrower’s mortgage, should you need to. You will be named on the mortgage but you won’t own a share of the property, nor will your name be on the deeds. You’re purely responsible for making the repayments, should the borrower fall behind. For this reason, people tend to be guarantors only to those they know really well, which is usually the parents or a close family member.
There are two ways a person is able to be a mortgage guarantor:
1. Use your savings to offset against the mortgage - you’ll have a savings account that is essentially owned by the mortgage lender. Depending on the terms of the mortgage, you might not be able to withdraw any money from the account until a certain amount of the mortgage has been paid off.
2. Use your own property to offset against the mortgage - if a lot of repayments are missed, you could be at risk of having your home repossessed.
Who can be a mortgage guarantor?
This differs from lender to lender, but generally speaking either a parent, step-parent, grandparent, or friend could potentially act as a guarantor.
Parents are the most common type of mortgage guarantor we see. Many parents choose to support their children in some way or another. Whether they help their children throughout their university years, or contribute to their wedding day. Funding these life events can leave funds pretty low to help out in other areas, i.e getting them on the property ladder. This is why being a mortgage guarantor is such an attractive option, as you don’t need to fork out any money upfront to be able to help them.
As a mortgage guarantor, you will need to meet the following criteria:
- Be over 21 years old
- Own your own home outright - or have build up enough equity to meet the lender’s criteria.
- Have a good income - this proves you have enough money to meet any defaulted repayments, as well as paying your own mortgage, if you still have one.
- Have a good credit score - again, to show you’re financially reliable.
- Seek legal advice - some lender’s will need to see proof that you’ve had legal advice before the application can continue.
Who might be interested in guarantor mortgages?
Those who might need a mortgage guarantor are likely to be one of the following:
- First time buyers
- Low income earners
- No or a small deposit
- A poor credit score or no credit history at all
- Just started a new job
Does being a guarantor affect my mortgage?
It won’t directly affect your current mortgage but it could affect any future mortgage applications you make. When applying for a mortgage, lenders are primarily looking at every aspect of your financial life, including any debts or dependents you might have. As a guarantor, you are responsible for paying your family member or friend’s debt, so the lender has to take this into consideration when calculating your affordability.
Do you have to be a guarantor for the whole term of the mortgage?
Once the borrower has built up enough equity in their home, depending on the original agreement with the lender, you can be removed as the guarantor.
Whether you're interested in becoming a mortgage guarantor or are worried about your own deposit, get in touch with one of our expert advisers today. Becoming a mortgage guarantor can be an incredibly fulfilling experience but we always recommend taking the time to make sure it's the right fit for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.