Your guide to guarantor mortgages

In the financial wild west, guarantor products have something of a bad reputation. Guarantor loans however provide a lifeline for individuals with bad credit. These product types allow them to access the finance they need by taking out the loan with another party (usually a trusted family member or friend) who would pay the debt if they were unable to later down the line.

Guarantor mortgages work similarly, meaning people who can’t get onto the property ladder with traditional mortgage products can do just that.

What are guarantor mortgages?

Guarantor mortgages work in the same way as other guarantor-based financial products. With the help of a loved one – more commonly a parent in the case of guarantor mortgages – applicants deemed to be at higher risk can borrow the money they need to buy a home.

Usually, your guarantor will have to secure your mortgage against their savings or their own property to obtain approval. The home or savings will then be at risk if the borrower fails to keep up with their mortgage repayments.

Your guarantor will not be permitted to own shares of the property and will not be named on the title deeds.

How much can I borrow with a guarantor mortgage?

Due to the security offered by your guarantor’s assets, you may be able to borrow more using a guarantor mortgage when compared to obtaining finance through a traditional mortgage.

Selected guarantor mortgages even allow you to secure the mortgage without paying any deposit at all. With this, you could lend up to 100% of your dream property’s purchase price.

Is a guarantor mortgage suitable for me?

Applicants with low incomes, those with small or zero house deposits, people with bad credit scores, and individuals with no or little credit history may find guarantor mortgages particularly useful.

Whilst the pressure may be off you as a borrower, however, your guarantor will have to meet strict criteria for your guarantor mortgage application to be successful. Generally, your guarantor will have to have savings or property, a good credit history, and be completely clear about the implications of being a guarantor by seeking independent legal advice.

In some cases, guarantor mortgage lenders will only allow family members to act as guarantors.

What are the pros and cons of guarantor mortgages?

The advantages of applying for a guarantor mortgage include being able to secure finance to buy a property even when the odds are not in your favour in the traditional mortgage market. Guarantor mortgage borrowers also need less or no deposit, which means you can become a homeowner sooner than you think and without the usual months or years of saving.

There are of course many, rather serious risks associated with this mortgage type. Missing mortgage repayments can leave your guarantor in hot water. The property or savings used to secure the product will be forfeited and your guarantor will be left out of pocket.

If house prices decrease and the property needs to be sold for less at the time of default, the sale of your guarantor’s property or their savings may not cover the outstanding balance. In this instance, your guarantor will be liable to pay for the shortfall.

If your guarantor passes away, you may be required to find a new guarantor. Alternatively, funds may be recovered from your guarantor’s estate.

Looking to help a loved one buy a property?

It is important to remember that a guarantor mortgage isn’t your only option. Deposits can be gifted or borrowed to help your relative make their property purchase. Joint mortgages are regularly explored by eager to help parents and relatives. But, Which? explains, that joint mortgages have their own pros and cons:

“A joint mortgage involves both you and your child being named on the mortgage and the property deeds. On the plus side, it means you can use your income and savings to help your child buy a home. On the other hand, you’ll be jointly responsible for the mortgage payments and will need to pay second property stamp duty rates if you already own a home.”

Explore all your mortgage options by finding a local mortgage advisor today.

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