A guarantor mortgage is a way of securing a mortgage when you lack the required deposit or have financial circumstances that may discourage lenders. When someone agrees to act as a mortgage guarantor for you, they commit to covering the repayments if you fail to keep up.
Sometimes called a family assisted mortgage, a guarantor mortgage is a way for parents (or grandparents) to help their children on to the property ladder.
The guarantor will not own a share of the house, and they won’t be named on the deeds. Being a guarantor simply means signing a legal agreement to cover mortgage repayments if the actual borrower falls behind.
A guarantor mortgage is suitable for:
- A borrower with no deposit or a small deposit, typically a first time buyer
- A borrower with a low income
- Someone with a low or non-existent credit score
- Someone who wants to buy a property that costs more than lenders think they can afford
A guarantor generally needs the following:
- To own their own property or possess enough equity to satisfy the lender
- A high enough income to cover the cost of mortgage repayments if required
- A strong credit record
- A guarantor needs to possess sufficient assets to offer as part of the legal guarantee. Becoming a guarantor on a mortgage may mean you sign over a charge on your own home, giving the lender the ability to repossess it if payments are not met.
Alternatively, a guarantor can offer their savings as way of guarantee. In this instance, the guarantor would put a lump sum into a savings account held by the mortgage lender. The savings cannot be accessed until an agreed amount of the mortgage has been paid off. Typically a guarantor will be released from the mortgage agreement once the loan to value level on the property has decreased to around 80%.
Although the guarantor cannot touch the allocated savings during this time, the amount can usually accrue interest on their behalf.
Some lenders give mortgages with a loan to value (LTV) of 100%, meaning if you have a willing guarantor you might not need a deposit at all. Other lenders require a deposit for a guarantor mortgage, the level of which will vary. If you know exactly how much funds you have available, it will be much easier to compare what’s out there.