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What is a guarantor mortgage and who can be a guarantor?

MORTGAGES | 16.03.2021

The budget this year saw the Chancellor announce a few initiatives to keep the housing market buoyant. One of them was that The Government is offering a guarantee to banks to provide extra security for them to offer 95% mortgages which will help people to buy a home with a 5% deposit. The scheme will run to December 2022. As well as this new form of guarantor mortgage from the government, homebuyers can still take out a mortgage that has a guarantor attached to it of their own. 

Here we provide some more information around them.

What is a guarantor mortgage? 

It is a home loan given to help you purchase a property where a parent or close family member agrees to take on some of the risk of the mortgage by acting as a guarantor. The lender usually asks for the guarantor to offer their savings or put up the value of their own home as security against the amount loaned, agreeing to cover the mortgage repayments if the homeowner misses a payment.  Some guarantor mortgages will allow you to borrow 100% of the value of the property by using your parents’ assets in place of any deposit you have saved. The advantage of this type of product is that it may help you get a mortgage quicker or even allow you to borrow more to get the home you want. The negative, is that the guarantor is responsible for any payments missed or any payments if the property has to be repossessed and sold. 

Who are guarantor mortgages suitable for?

This type of mortgage may be suitable for people buying a property who have:  A low income: Lenders decide on how much they lend you based on your income, and indeed your outgoings. By having a guarantor this may enable you to get a bigger loan.  No credit history: If you have never had a credit card, for example.  Little or no deposit: With a guarantor mortgage it can help you borrow up to 100% of the property’s value.  A bad credit score: With a guarantor in the picture, a lender may be more inclined to offer you a mortgage if your credit score is low. 

Who can be a mortgage guarantor?

The majority of lenders will require your guarantor to be a close family member, usually your parents. In order for them to be considered, they will have to possess savings or own a property. The lender providing the mortgage will then look at holding some of their savings in an account or take a legal charge over a percentage of their property to secure the mortgage. They will also be required to take a look at their credit history to ensure that they are financially reliable and don’t have any debt. The lender will also insist on them seeking legal advice so they know that the guarantor is aware of the potential risks they are taking. 

What is the guarantor’s liability? 

If you maintain on time mortgage repayments, then your guarantor won’t have to do a thing. But, if you continue to miss repayments that means the lender has to step in and repossess your home before going on to sell it, both you and your guarantor are responsible for any shortfall for any amount that is still owed on the mortgage. If, for example, you had a mortgage of £150,000, but when you came to sell the property and it sold for £125,000 then the £25,000 difference would have to be taken from the guarantor’s savings or property, depending on what they put down as the guarantee.  There are many benefits of a guarantor mortgage, especially if you need a little more help to get on the property ladder, but be aware of the risks too. If you are looking for expert advice, TaylorMade can help you secure a mortgage, whether you’re a first-time buyer or you’re an existing home owner. Please get in touch with our team today on 0345 305 2540, or at info@taylormade-finance.co.uk.
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Your home may be repossessed if you do not keep up repayments on your mortgage.

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