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Guarantor mortgages
Find out what a guarantor mortgage is, including the different types of deals you can get and their pros and cons.
A guarantor mortgage is a home loan, where a parent or close family member takes on some of the risk of the mortgage by acting as a guarantor.
This usually involves them offering their home or savings as security against your mortgage, and agreeing to cover the mortgage payments if you default (miss a payment).
Some guarantor mortgages even allow you to borrow 100% of the property's value by using your guarantor's collateral in place of a deposit.
The main advantage of guarantor deals is that they help first-time buyers who are struggling to get a mortgage, or enable them to borrow more.
The big downside is that the guarantor could be liable for any shortfall if the property has to be repossessed and sold, which could mean losing a huge chunk of their savings or putting their own home at risk.
If you click on the link and complete a mortgage with L&C Mortgages, L&C is paid a commission by the lender and will share part of this fee with Which? Ltd helping fund our not-for-profit mission. We do not allow this relationship to affect our editorial independence. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
Who are guarantor mortgages suitable for?
A guarantor mortgage could be suitable if you're looking to buy a property with...
A low income: lenders will decide how much to lend you based on your income, so having a guarantor may enable you to get a bigger loan.
A small/no deposit: you could potentially borrow up to 100% of a property's value with a guarantor mortgage.
A bad credit score: having a guarantor might make a lender more inclined to offer you a loan.
Little or no credit history: for example, if you've never had a credit card - this means lenders won't have any evidence of how well you deal with debt, so having a guarantor could mean they're more inclined to give you a mortgage.
An independent mortgage broker can give you more in-depth advice on whether a guarantor mortgage is suitable for you.
Many lenders will require the guarantor for your mortgage to be a close family member - usually a parent.
Your guarantor will need to have:
Savings or property: your mortgage lender will either hold some of your guarantor's savings in a locked account, or will take legal charge over a portion of their property to secure the mortgage on your property.
A good credit history: so lenders can trust that they are financially reliable.
Received legal advice: a requirement from some lenders in order to confirm guarantors are aware of the risks.
Find the right mortgage product using the service provided by L&C Mortgages.
What happens if you can't pay your mortgage?
If you don't miss your repayments, your guarantor won't have to do anything.
However, if missed repayments mean that the lender has to repossess and sell your property, both you and your guarantor would usually be responsible for any shortfall if the property is sold for less than the amount still owed on the mortgage.
For example, if you owed the lender £150,000 but they were only able to recover £125,000 by repossessing and selling your property, the £25,000 difference could be taken from your guarantor's savings or property, depending on what they used to guarantee the mortgage.
The best way to minimise this risk is to remortgage as soon as you can to a deal which doesn't require a guarantor.
This will be possible as soon as you've built up enough equity in your property (by paying down your mortgage plus any growth in its value).
Guarantor mortgages all come with slightly different names and eligibility criteria, but they generally fall in to one of these two categories:
Savings as security
Some lenders offer mortgages where a family member deposits cash (typically 5%-20% of the property price) into a special savings account.
The money is held as security for your mortgage for a set number of years, or until the amount you owe falls below a certain percentage (e.g 80%) of the property's value.
Your family member can usually earn interest on the money linked to your mortgage, although the rate might be lower than they'd get with other savings accounts.
If you miss any mortgage repayments, the lender could hold on to your family member's savings for a longer period. If the lender had to repossess and sell your property, and received less than what you still owed on your mortgage, they could recoup the difference from your family member's savings.
Property as security
These deals involve a charge being placed against the guarantor's property. This means that to be eligible, the guarantor will usually need to own a high proportion of their property outright.
In the worst-case scenario, if the lender had to repossess and sell your property for less than the amount remaining on the mortgage, your family member could stand to lose their home.
Joint and JBSP mortgages
Joint mortgages allow a parent and child to buy a property together, meaning both names are on the mortgage and the property deeds.
This means your parent can use their income and savings to boost your mortgage changes.
There are two big pitfalls, however.
First, the parent will be jointly responsible for the mortgage. Second, if they already own their own home, they will need to pay the second property stamp duty surcharge, which can run to thousands of pounds.
JBSP mortgages
Joint Borrower Sole Proprietor (JBSP) deals also allow parents and children to club together to get a mortgage.
The big difference is that, while the parent and child are both named on the mortgage, only the child's name will be on the property's deeds, meaning the parent will be able to avoid the stamp duty surcharge
However, older parents may struggle to get accepted, and lenders may prefer applications where the child can prove their earnings will rise significantly in the future.
Unlike some products that use the guarantor's savings or property as collateral, joint and JBSP mortgages will still require the buyer to put up a deposit, which varies from deal to deal.
Guarantor mortgages FAQs
Lenders will decide this on a case-by-case basis. It is possible that the security a guarantor offers could offset the risk you pose as a customer.
With guarantor mortgages that require a deposit, the amount you can borrow will depend on how much you can afford to pay upfront and how much you can afford to pay from month to month.
But some guarantor mortgages are 100% mortgages, meaning you won't have to put down any deposit.
In these cases, the amount you can borrow will be based on your affordability, and potentially how much your guarantors will be able to secure.
This will depend on your lender. Some require you to find a new guarantor, while others will allow you to pay off some of the mortgage with your guarantor's estate. Check your lender's policy before you make your application.
Since your guarantor will likely secure your mortgage through their savings or property, their income or employment status should not usually make a difference.
But since every mortgage deal is different, it's best to ask lenders, or your mortgage broker, to find out for certain.
Generally speaking, guarantor mortgages come with a higher interest rate than if you were taking out a standard mortgage.
This means you'll need to think carefully about whether you can afford the monthly repayments before taking the leap.
A guarantor mortgage creates a financial link between parent and child, with your parent potentially putting their savings or property on the line if you default.
Money can be an emotive issue, so think carefully about whether this is a wise move.
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