Do I Need a Guarantor?

What is a guarantor mortgage? What is a parent guarantor?

A guarantor mortgage is also known as a family assisted mortgage. They’re designed for people that can’t get a mortgage independently – such as someone with little or no credit, or bad credit, even.

A guarantor is normally a parent but can be grandparents or siblings – generally a close family relative. They guarantee to the lender that the mortgage will get paid, so that if the borrower defaults on the payment, then the guarantor has to pay it.

Do mortgage lenders still accept guarantors? Is it easier to get a mortgage if you have a guarantor?

Some do, but not many of them. It’s only used if the borrower has no way of getting a mortgage, basically. Other ways are more common now, such as a Joint Borrower Sole Proprietor mortgage, which I explained in an earlier episode.

With Joint Borrower Sole Proprietor, one person goes on the deeds and two to three people can go on the mortgage, but not on the deeds. That’s a separate thing – you can listen to that episode if you want to have a look at that.

How does a guarantor mortgage work? What are the types of guarantor mortgages?

The guarantor guarantees the mortgage payments to the lender. There are types where the guarantor’s savings can be held in a bank account chosen by the lender. It’s a form of offset mortgage with that lender.

With another type, the lender will put a charge against the parent’s property. Obviously these involve some risk, because if the mortgage is not paid, the lender will come for that property and sell it to pay the debt.

You can choose to guarantee the whole loan or the shortfall. With the shortfall option, the guarantor just covers a small top-up on the affordability for the borrower. But the most common ones are the other three that I mentioned.

Will I be able to borrow more with a guarantor mortgage? How much of a mortgage can I get with a guarantor?

It’d be around four to five times income, depending on what your commitments are in the background.

Can you get a 100% mortgage with a guarantor?

Yes, guarantor mortgages sometimes allow you to borrow 100% of the property value.

Do guarantor mortgages have higher interest rates?

Yes, they generally are higher because they’re an unusual scenario. The Joint Borrower Sole Proprietor mortgages are the most common now, and they don’t have higher interest rates generally. They’ll have similar rates to a standard, straightforward mortgage.

Who is a guarantor mortgage suitable for? How do you qualify for one?

These mortgages are suitable for someone who has bad credit or no credit history. Sometimes it can be someone who is training in a professional role, or doing a degree where the job will be offered on successful qualification. That’s another reason why a guarantor mortgage could be offered.

What documents should I provide for a guarantor mortgage?

It’s pretty much the same as a normal mortgage, but both the borrower and the guarantor would need to supply their latest three months’ pay slips, three months’ bank statements and either a driving licence or passport.

They may be asked for a bit more information, but these are generally what they’re asked for.

Who can guarantee a mortgage?

Most lenders require it to be a close family member such as a parent or grandparent. Some may allow an aunt, uncle or a sibling.

What are the risks of a guarantor mortgage? What are the downsides of being a guarantor on a mortgage?

The main risk is that the guarantor is legally responsible for the repayments if the borrower doesn’t make them. If you can’t make these, you could lose your home or damage your credit file. Those are the risks and the downsides.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.