Table of Contents
- What is a guarantor mortgage?
- Who may want a guarantor mortgage?
- How does a guarantor mortgage work?
- Who can be a guarantor for a mortgage?
- What are the risks involved with a guarantor mortgage?
- Pros of a guarantor mortgage
- Cons of a guarantor mortgage
- Who offers guarantor mortgages?
- Alternatives to a guarantor mortgage
- Guarantor Mortgage FAQs
If mortgage lenders are turning you away, a guarantor mortgage may be worth exploring if your parents, other family members or a friend are willing to offer you their support. Read on to learn more about how getting a mortgage with a guarantor works and the pros and cons of having, and being, a guarantor for a mortgage loan.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
What is a guarantor mortgage?
With a guarantor mortgage, you have someone – your guarantor – who promises to cover your mortgage repayments if you don’t make them.
By taking your guarantor’s finances into account a guarantor mortgage may allow you to get a mortgage if you couldn’t otherwise, or borrow more, than if you were taking out a mortgage alone. However, the guarantor won’t own any of the property itself or be included on the property deeds.
Because of the extra reassurance a guarantor gives to lenders that they’ll get their money back, it may also be possible to get a guarantor mortgage without a deposit – these are known as 100% mortgages, or no deposit mortgages.
Who may want a guarantor mortgage?
A guarantor mortgage may be worth considering if it’s proving difficult to get a mortgage due to you having:
- A small or no deposit
- A low or unreliable income
- A less-than-perfect or poor credit score
- No or little credit history
Often guarantor mortgages are used by parents to help their children onto the property ladder as first-time buyers.
» MORE: How much deposit do you need for a mortgage?
How does a guarantor mortgage work?
In many ways, a guarantor mortgage works the same as any other mortgage. If you have a fixed-rate mortgage, your monthly repayments will stay the same for the period of time you’ve fixed, or if you have a variable mortgage, such as a tracker mortgage, your repayments could rise and fall.
The big difference is that if you don’t make those repayments, then your guarantor is legally obliged to step in and make the payments themselves. If they don’t, your lender could take their home or other assets to cover what is owed. What is at risk depends on the type of guarantor mortgage taken out, and the security your guarantor has put up as collateral against your mortgage loan.
Guarantor mortgages involving property
If your guarantor puts forward their property as security, and neither you nor they make the necessary mortgage payments, your home could be repossessed first. However, if there is still money owed after your home is sold, a lender could repossess your guarantor’s home as well to get back what they need.
Guarantor mortgages using savings
Some guarantor mortgages allow savings to be used as security instead of property. There are two main types:
Family deposit mortgages
With a family deposit mortgage, a guarantor may have to deposit up to 20% of the value of your property into a savings account, and leave the money in place for a set number of years or until a certain amount of the mortgage is paid off. The money is returned, plus interest, if the necessary mortgage repayments are made. But if repayments aren’t made, it can be held for longer, or eventually used to pay off what is owed if your home is repossessed and there’s still debt outstanding.
Family offset mortgages
A family offset mortgage is broadly similar, but your guarantor isn’t paid interest on the money they have set aside. Instead, you’re not charged interest on a part of your mortgage that is equivalent to the savings your guarantor has put forward, helping to reduce your repayments.
Who can be a guarantor for a mortgage?
Almost anyone could be a guarantor for a mortgage if they are in a decent financial position in their own right. However, eligibility to be a guarantor can differ between lenders, and it may be that there’s a preference for a guarantor to be a parent – at the very least, they will need to be a close relative or a close and trusted friend.
Typically, lenders will want a guarantor to be at least 21 years old and have a good credit score. There may also be an upper age limit, given that obligations as a guarantor could last many years.
A guarantor may still be working or retired. But crucially, they’ll need a good enough income, or sufficient assets, to convince a lender they can cover your mortgage and meet their own financial responsibilities if you don’t make your payments.
Some lenders may accept savings as a suitable asset for security, but others will want a guarantor to be a homeowner. In turn, some may require guarantors to own their own home outright, while others may settle for a guarantor to have a certain amount of equity in their property.
» MORE: Who can be a guarantor for a loan?
What are the risks involved with a guarantor mortgage?
As the main borrower, you run the same risks as with any type of mortgage. Your credit score could be affected if you fail to keep up with your mortgage repayments, and in the worst case scenario, your property could be repossessed.
However, with a guarantor mortgage, the same risks apply to your guarantor, who could lose their home or savings, or see their credit score hit, if repayments are missed. In addition, being a guarantor could also affect their ability to get other loans or a mortgage. And if savings are used as security, these could be tied up for several years, and not easily accessible.
Importantly, lenders will want to make sure that a guarantor is fully aware of the risks they are taking. They may also insist that a potential guarantor takes legal advice before finalising the mortgage.
Pros of a guarantor mortgage
The main advantage of a guarantor mortgage is that it may allow you to get a mortgage you otherwise couldn’t.
It could also allow you to borrow more than 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 if you have black marks on your 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.
Cons of a guarantor mortgage
The main challenge with a guarantor mortgage is that you need to find someone who is willing, and able, to act as a guarantor. Their finances must also be in a sufficiently strong position that it will make a difference to your application or the amount you can borrow. They must also be comfortable with the risks involved.
Having your finances linked to a loved one in this way can also cause tension, especially if you struggle to keep up with repayments in the future.
In addition, the interest rates on guarantor mortgages tend to be higher than those offered on regular mortgages. This will almost certainly be the case with a 100% mortgage, a type of guarantor mortgage which doesn’t require a deposit. The higher monthly repayments this leads to must be considered carefully, particularly given the risks carried by your guarantor if they’re not made.
» MORE: Current mortgage rates
Who offers guarantor mortgages?
Many well-known banks and building societies offer guarantor mortgages, but it should be noted that guarantor options and eligibility requirements can differ considerably.
If you’re struggling to find a suitable deal, you may want to consider using a mortgage broker, who could have access to mortgages that you can’t get directly. They are also well-placed to know which lenders offer the best chance of success. If you want to discuss guarantor mortgages, NerdWallet has partnered with L&C, the UK’s leading fee-free mortgage broker, who can offer you expert advice on your options.
» MORE: Best mortgage lenders
Alternatives to a guarantor mortgage
One alternative to a guarantor mortgage is a joint borrower sole proprietor (JBSP) mortgage.
With a JBSP mortgage, several people can be named on the mortgage, meaning their combined income and savings can be taken into account to improve your mortgage prospects. As with a guarantor mortgage, only one of those borrowers is legally named as the owner of the property on the property deeds. The difference is that everyone has equal responsibility for paying the mortgage from the start.
Taking out a joint mortgage is another potential alternative where more than one person is named on the mortgage. However, with this arrangement, all parties have a legal stake in the property and are named on the deeds, meaning a joint borrower who is already a homeowner may have to pay higher stamp duty, due to the additional property surcharge.
All of these types of mortgages could affect tax, ownership rights and more, so making the right choice is important. Getting mortgage advice can help you understand which option is best suited to you.
Guarantor Mortgage FAQs
A guarantor mortgage may 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.
It is possible to get a guarantor mortgage if you have bad credit. A guarantor mortgage could improve your chances of getting a mortgage if you have poor credit because lenders know they have the fallback option of your guarantor to get their money back.
A guarantor mortgage may be worth exploring if your income, credit score or lack of a suitable deposit means you’re struggling to get a mortgage on your own. However, taking out a guarantor mortgage is not a decision to be taken lightly, particularly by your guarantor, whose property or savings will be at risk if you don’t pay your mortgage.
Retired parents could still be guarantors for your mortgage, particularly if they have a reliable income, good credit score, and own their own home or have savings that they’re willing to use as security for your mortgage.
There is no definitive figure as to how much you must earn in order to be a guarantor. Eligibility requirements for guarantors can differ widely between lenders, with your financial situation as a whole likely to be the main determining factor.
This will depend on the terms of your particular mortgage. It may be that you have to find a new guarantor, or you could be in a position where you’re able to remortgage to a new deal that doesn’t require a guarantor. It’s also possible you might be allowed to use some of your guarantor’s estate to pay off some of your mortgage.
Image source: Getty Images
Dive even deeper
What Credit Score Do You Need for a Mortgage?
by Sam Bromley
Should I Get a Fixed or Variable Mortgage?
