What Is A Guarantor Mortgage?

It’s becoming increasingly common for parents to go to great lengths to help their children purchase their first home. From letting them move in with them to gifting them thousands of pounds, there are a number of popular ways that parents are helping. Another option for parents wishing to help their kids get a foot on the ladder is a guarantor mortgage. Let’s take a look at what a guarantor mortgage involves.

What is a guarantor mortgage?

When a person takes out a guarantor mortgage, a relative or close friend ‘guarantees’ the mortgage debt. This means that if the borrower was to have difficulties making mortgage repayments, their guarantor would be legally responsible for the debt and would have to step in and cover the costs. A prospective homeowner is most likely to need a guarantor if they have a low income or small deposit. By applying for a mortgage with the help of a guarantor, the lender will have an extra layer of reassurance that the loan will be repaid.

Can a guarantor help me buy a house despite bad credit?

If you have a bad credit rating, using a guarantor can sometimes help. However, many lenders may still be reluctant to provide you with the money you need to purchase a house. They’ll estimate the risk of financial loss before coming to a conclusion.

Will the bank assess the guarantor’s finances?

When deciding whether to offer a guarantor mortgage or not, lenders will investigate the guarantor’s finances with close scrutiny, in the same way that they do with ordinary borrowers. Not only will they look at the home buyer’s income, expenses and debts, they’ll also want the same information for the guarantor too. They’re likely to look at the guarantor’s expenditure as well, to ensure they can afford the repayments after all their outgoings.

Will I be able to access regular mortgage deals if I need a guarantor?

When applying for a mortgage with the help of a guarantor, some of the mortgage products provided to those without a guarantor may also be available to you. The deals within your reach will depend on your financial circumstances, your guarantor’s financial circumstances and the lender in question. Generally, those applying for a mortgage without a guarantor will be able to choose from a greater choice of mortgage products as they’re often considered less risk. Some mortgage lenders don’t offer any guarantor-friendly deals at all.

What do guarantors need to consider?

It’s really important that guarantors trust the borrower and have a strong relationship with them. After all, if the borrower was unable to make their repayments or they decided not to pay the money for whatever reason, the guarantor would become responsible for the debt. Guarantors also need to consider whether their involvement in this mortgage could affect their ability to borrow money themselves. For example, if a person becomes a guarantor for a relative and then decides to apply for their own mortgage deal, potential lenders will take a look at their finances to see if they can afford to repay their own mortgage and the relative’s mortgage at the same time. If you think you’ll need a guarantor in order to secure a mortgage, please get in touch with our team of brokers. We can take a close look at your finances before highlighting the lenders most likely to approve your application.