Getting on the property ladder can be difficult. However, millions of people manage to do it every year. What’s their big secret? The fact is – there isn’t one. There are just many different routes towards buying a home which you may not be aware of.
When consulting a mortgage advice service, you may be offered access to a wide range of ideas – one of which may be a guarantor mortgage. But what is a guarantor mortgage, and how do they work in practice?
What is a guarantor mortgage?
A guarantor mortgage is supported by a third party. This third party helps the person looking for a mortgage by supplying money or assets to a lender as a security deposit. This means that a prospective homeowner could borrow more than they are otherwise able to.
Guarantor mortgages are generally aimed at low income earners and young people trying to get on the property ladder. Some young buyers might choose guarantor mortgages while they are studying or training. This means that they will be able to eventually pay their own way. You could think of it like a stepping stone.
Is a guarantor mortgage right for me?
Guarantor mortgages are suited to first time buyers who have significant earning potential. This means that they can easily secure a deposit with the help of a third party, before going on to fund their mortgage with their own earnings later on down the line.
Finding a guarantor mortgage is sometimes recommended if you have struggled with poor credit. A mortgage with a guarantor can help give a lender greater confidence in supporting you.
However, if you can’t afford to keep up payments, your guarantor will have to pay the mortgage payments. This means that they may lose assets, or the property could be repossessed. There are knock-on effects for anyone involved with guarantor mortgages – so it’s important to consider the option carefully.
What will a lender need from me?
When applying for a guarantor mortgage, a lender will still need some information from you to get started. This typically includes:
- Your current income
- Your earning potential
- Your credit score
- Your available money for deposit
- Your expenditure
Your potential guarantor will also be assessed.
Who can be a guarantor?
Guarantors are often close family members or friends. However, lenders will require that they are in a financial position to be able to act as a safety net. Preferably they will have a good credit score and a regular income or retirement funds in place. They should also have enough money to be able to pay their own mortgage as well as potentially yours.
A guarantor mortgage can be a great idea if there is someone who is willing to help you. However, as there are potential repercussions for credit scores and for any assets involved, it’s a decision you shouldn’t make lightly.
Discussing your options with a local mortgage adviser is a good place to start as they can help find the most suitable way to get you on the property ladder.