What is a Guarantor Mortgage?

A guarantor mortgage can help applicants who are unable to secure a mortgage on their own. A guarantor will be liable should the applicant default on their repayments. Find out more about who can be a guarantor and some of the pros and cons of this type of deal.

John Fitzsimons Published on 20 October 2021.
What is a Guarantor Mortgage?

With a regular mortgage, a lender determines what they are willing to lend you based on your finances. This can be quite limiting for people who are trying to buy a property alone, earn less, or who have an imperfect credit history.

A guarantor mortgage works slightly differently, as you have a guarantor in place who has agreed to cover your mortgage repayments if you are unable to make them yourself. The idea is that, if you default on your payments and stop making them, the lender will be able to pursue the guarantor for the money you owe.

Because the guarantor’s finances are taken into account when determining what you can afford to borrow, a guarantor mortgage may allow you to borrow more than if you tried to take out a mortgage alone.

Importantly, while the guarantor agrees to cover the mortgage payments, they don’t actually own any of the property itself.

How much can you borrow with a guarantor mortgage?

A guarantor mortgage can mean that you can borrow a larger amount than if you borrow alone. That’s because both your finances and those of your guarantor are included when the lender calculates what it thinks you can afford.

Lenders will go through your bank statements, and those of your guarantor, to establish what you can afford to repay. This won’t just be based on current interest rates, but also what you might be able to repay each month should rates rise.

Lenders also have their own maximum loan caps, which cover the absolute largest home loan they will offer to borrowers. These vary between lenders though.

» MORE: What’s required when making a mortgage application?

Who can be a guarantor?

Individual lenders may have different rules covering who they will accept as a guarantor on your mortgage.

It’s not unusual for lenders to require the guarantor to be a family member, while they will also need to be in a decent financial position in their own right. For example, some lenders may require guarantors to own their own home, rather than to be a tenant.

» MORE: Who can be a guarantor for a loan?

Pros of a guarantor mortgage

The main feature of a guarantor mortgage is that it allows you to borrow more than you could if you were borrowing on your own.

Some borrowers may not be able to get a large enough mortgage to purchase a home if they borrowed alone, but a guarantor mortgage may mean they could get on the housing ladder.

Guarantor mortgages can also make a big difference to those with black marks on their credit history. These issues can make it difficult to obtain a mortgage on your own, but as the lender has the peace of mind that a guarantor can cover repayments if you can’t, it may be more likely to approve your application.

» COMPARE: Mortgage deals for people with bad credit

Cons of a guarantor mortgage

A big downside to a guarantor mortgage is that you need to find someone willing to act as a guarantor, and whose own finances are in a sufficiently strong position that it will make a difference to the amount you can borrow.

Having your finances linked to a loved one in this way can also cause tensions, especially if either party has concerns about your ability to keep up with repayments.

Finding a guarantor mortgage isn’t always easy. These mortgages have always been something of a niche product, with only a few lenders offering them, and that level of choice has fallen in recent years. This means you may not be able to get one, even if you have someone willing to act as a guarantor.

Historically, interest rates on guarantor mortgages have also been higher than those offered on regular mortgages. It’s all about risk – a guarantor mortgage is a more risky prospect for a mortgage lender, so lenders will want to levy a higher interest rate to account for that risk. That means that your monthly repayments will be higher.

» COMPARE: Mortgage rates and deals

Joint borrower sole proprietor mortgages

While guarantor mortgages are becoming less common, a similar form of mortgage has grown in popularity – the joint borrower sole proprietor mortgage.

As the name suggests, while the mortgage is taken out by at least two people, only one of those borrowers actually lives in the property as the owner. For example, a first-time buyer might take one out with their parents in order to purchase their first home.

As with a guarantor mortgage, the non-resident borrower’s finances are included when establishing what the lender will offer, but they aren’t named on the property deeds.

With this type of mortgage, the non-resident is considered a borrower in their own right rather than merely a guarantor, but in practice they work in much the same way as a guarantor.

Image source: Getty Images

About the author:

John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more

If you have any feedback on this article please contact us at [email protected]