Guarantor Mortgages

What is a guarantor mortgage?

A guarantor mortgage is where another person assumes or takes responsibility for your repayments in the event you cannot make them. This person is typically a parent or family member and is known as the ‘guarantor’.

How do guarantor mortgages work?

Apart from having someone act as a guarantor for you, these mortgages are very similar to a standard mortgage. Typically, your guarantor won’t have to do much, making it a fairly straightforward process. However, they will need to sign the legal documents that outline their role as a guarantor, so it is advisable to seek specialist support like a mortgage broker.

Additionally, the mortgage will be secured against the guarantor’s home as well as yours. Ensure you and the guarantor are aware of all implications before you go ahead with any product.

Another difference you may find is that guarantor mortgage rates are slightly higher than usual. Lenders may see you as a riskier borrower, as people who use a guarantor typically have a smaller or no deposit. Therefore, lenders need to minimise their risk exposure by imposing conditions like higher interest rates.

Who should get a guarantor mortgage?

There are a range of people that these mortgages can suit. The most common borrowers are those who may be struggling to put down a sizeable deposit or individuals with low income, affecting their mortgage affordability. Often, lenders see them as more of a risk and won’t offer them a product without a guarantor.

Another common borrower type are those who have a bad or no credit history. As credit assessment is a crucial part of a lender’s assessment, many individuals suffer when a lender looks at their credit. By using a guarantor, part of the risk is offset, increasing your chances of success.

Who can be a guarantor for a mortgage?

Almost anyone can serve as a mortgage guarantor, although lenders often seek one of the following qualifications.

Here is a list of individuals who can serve as a guarantor:

1. A close family member. This can differ depending on the lender, but could include:
   • Parent
   • Sibling
   • Grandparent
   • Cousin
   • Uncle or Aunt

2. Other choices. Depending on the lending institution:

1. • Adoptive parent
   • Spouse (some criteria will apply)
   • Distant relatives
   • Friends
   • Colleagues

In principle, a lender may accept any type of relationship between you and a guarantor as long as they’re satisfied with the situation now and in the future. The projected duration of the guarantee will also influence their decision.

What documents does a guarantor need?

Each lender will have their own requirements, so what’s required can differ from one lender to another. Typically, the following is required:

• Proof of ID: Passport or driving licence.
• Proof of address: Utility bill, council tax statement, or bank statement dated within the past 3 months.
• Proof of income: Payslips, P60 tax form, or self-assessment tax returns if self-employed.
• Bank statements: Statements from up to the past 6 months are usually requested to show your financial stability and to prove your deposit amount.

As well as carrying out credit checks on you, lenders will also assess your guarantor’s credit history.

What makes a good mortgage guarantor?

If you’re looking to use a guarantor, you need to be aware of some of the fundamental criteria lenders use to assess you.

You should familiarise yourself with the requirements and misconceptions before considering a guarantor mortgage:

1. Income – As a guarantor is responsible for making payments if you’re unable to, they must be able to demonstrate they can afford this. As a result, income is the most important factor that lenders consider.
2. Assets – Despite the fact that many lenders would still want a guarantor to be a homeowner, this is not a requirement. The quantity of assets, including the value of their own home or other properties, is irrelevant. Also included are liquid assets, such as savings and investments. This is one of the most widespread misunderstandings regarding appropriate guarantors who may be ‘asset-rich’ but cannot demonstrate enough income-based affordability.
3. Age – Since a guarantor is expected to provide assurances for the entire mortgage term, age is a major factor. For instance, if you are a 25-year-old first-time buyer seeking a 35-year mortgage, it’s quite improbable that a lender will accept a 60-year-old guarantor. Even if you intend to remove the guarantor after a short time, a lender cannot be assured of this and must work under the assumption that the entire mortgage term must be guaranteed.

Which lenders offer guarantor mortgages?

In the current market, both mainstream and smaller lenders offer guarantor mortgages. This means that products are always becoming more competitive, giving you the best chance of obtaining a favourable deal.

From our experience, some guarantor mortgage lenders we have dealt with include:

• Barclays
• Skipton Building Society
• Cambridge Building Society
• Accord Mortgages
• Newcastle Building Society

Remember, this list isn’t exhaustive, there are many other lenders offering mortgage guarantor products. If you want an idea of your options, reach out today, our advisors are happy to discuss your situation.