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A guide to guarantor mortgages

Author: Myles Robinson - Expert Finance Advisor

Posted: Jul 24, 2022

Guarantor mortgage guide

If you have a relative who is willing to support you financially, a guarantor mortgage may be able to help you climb the property ladder.

These mortgages are a good option for those with little to no deposit and with a family member willing to get a guarantor mortgage for you.

There are many factors to consider when choosing a mortgage type. You can find out how to get a guarantor mortgage by reading our articles.

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How do guarantor mortgages work?

Suppose a borrower has no deposit, a poor credit score or a financial situation that would make it difficult for a lender to approve them. In that case, a guarantor mortgage may be able to help them purchase a home and get on the property ladder.

These agreements are also known as family-assisted mortgages. They require a relative to act as a guarantee for the mortgage. This means that they will make monthly repayments if the borrower cannot do so.

What is a guarantor’s role?

Your mortgage is partially financed by the person who acts as your guarantor. They may have to pay any monthly repayments that you are unable to meet. They may also need to place a lump sum in a savings account or secure a home loan against a property that they already own for this mortgage deal.

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How do guarantor mortgages function?

If you are taking out a joint mortgage with a guarantor, the person who acts as your guarantor must be listed on the title deeds.

The guarantor will not be entitled to any part of the property, but they must sign a legal agreement to pay any mortgage payments you fall behind. To protect the mortgage, a guarantor may need to provide security. This could be their own home, property or equity.

Security requirements

A guarantor may be required to guarantee the mortgage against any of the following:

  • A property they own. The lender will place a charge on the security asset, so the guarantor could lose the property through repossession if the borrower fails to make enough payments.
  • Their savings. The lender deposits a lump sum of their savings to the mortgage loan guarantor. The guarantor cannot withdraw from the pot for a specific amount of time (usually between 3 to 5 years) or until the mortgage loan is repaid in full. Usually, savings will earn interest while they are held in the lender account.

We will match you with one of our whole-of-market brokerages. They have access to all the markets and can answer your questions.

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Benefits of a guarantor mortgage

Various situations exist were mortgages with a guarantee or maybe a lifeline for borrowers who otherwise would struggle to get credit.

  • If a borrower does not have sufficient or no deposit
  • They are first-time buyers
  • They are low-income
  • They would like to purchase a home that they can afford but cannot afford without financial support.
  • A poor credit rating is ascribed to the borrower

How to get a mortgage with a guarantor

Although applying for a mortgage with a guarantor is the same as any other mortgage product, you must have a close friend or family member on board before you submit your application.

The best way to proceed is to find a broker with access to all guarantor mortgage lenders on the market. This will ensure you can access all the best guarantor home mortgage deals available.

Contact today so we can match you up with a mortgage broker specialising in arranging guarantor agreements to get you started. All of our mortgage brokers are registered by the financial conduct authority.

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No deposit guarantor mortgages

You can get a 100% mortgage without a deposit if you have a guarantor. Some lenders offer 100% loan to value (LTV) deals as long as the guarantor meets certain eligibility and financial requirements. Guarantors must have sufficient equity in their home or be willing to put down security. This is discussed in detail below.

Borrowers often use a guarantor to guarantee their deposit. You won’t be able to get a 100% mortgage if you don’t have a guarantor. These products are not available under any other circumstances. There may be other options if you have a low down.

LTV 95% guarantor mortgages

This is possible if you and your guarantor have passed the lender’s screening. A 5% deposit is required to obtain a 95% LTV mortgage guarantor.

This deal must be offered by a lender that meets your affordability and other criteria. The deposit would be paid, so a mortgage guarantor would help you pass affordability checks and allow you to borrow more money than you could without a guarantor.

As a guarantor of your son/daughter

You may be eligible to support your child with a guarantor loan as a parent. You will need to meet the eligibility requirements of most lenders for guarantors.

These are the requirements for parent guarantor mortgages:

  • The ability to own their own property. Although all lenders do not require this, some require that the property be either owned in full or have enough equity. Some lenders require that a guarantor own at least 30% of the property they are putting up as security.
  • You have enough income. Lenders will need to verify that the guarantor can cover mortgage payments in the event of default.
  • A clean credit rating. This will show the lender that your financial stability is strong enough to take over if the borrower defaults.

Is 100% of the mortgage payable to parental guarantors?

Most of the time it indeed is, but sometimes it’s not.

The borrower’s agreement with the lender to take out a guarantor mortgage could make the parent responsible for a portion of the debt in the event of a default by their child.

While some mortgage lenders might lend 100% of a property’s worth on parental guarantor mortgages to parents, they may only allow the guarantor a portion of the loan should the borrower default.

If you buy a property with a value of £100,000.

And your mortgage lender agrees that your guarantor will pay 50% of the debt if it is not possible to clear, the mortgage provider would charge £50,000 for the security property.

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Mortgages for family guarantors

These are the same as parent guarantor loans. There is one difference: it could be another family member acting as the guarantor. Some lenders only allow one parent, grandparent, or step-parent as guarantors.

Some lenders will only approve parents, grandparents, or step-parents.

However, these deals can be difficult to find. It is important to know that mortgage companies may use the term “family guarantor mortgage” to describe deals where only one parent can act as the guarantee.

How to get the highest interest rates

Although mortgage rates can fluctuate and change frequently, there are ways to ensure you get the best deals for you. To get the best deals, you must access all the markets. You should also try to meet the eligibility criteria for guarantor mortgages with as many lenders and banks as you can.

Requirements for eligibility

Guarantors for mortgages must meet certain eligibility requirements, but the borrower needs also to meet the lender’s standard criteria.

These are the factors that lenders use to determine eligibility and affordability:

  • How much the borrower earns and where they work. The more money you make, the better. However, if the borrower is not earning enough, a guarantor may be able to offset the risk. Specialist lenders may be needed for self-employed people or supplement their income with things such as regular bonuses and commissions.
  • Deposit. The minimum deposit required is usually 5% or 15% for a residential property. A guarantor may be able to waive any deposit.
  • Rating credit. A specialist lender may be required to provide the best rates for borrowers with poor credit ratings.
  • Age. Some mortgage lenders have strict upper and/or lower age limits.
  • The type of property. If the property is of a nonstandard construction (e.g. Timber frame, thatched roof
  • Borrower’s monthly outgoings. You may be unable to borrow the maximum amount due to significant outgoings such as debts or dependent children.

Send an enquiry to find out more about the best UK guarantor rates for mortgages. An expert broker will talk to you over the telephone and help you connect with the right lender for your circumstances and needs.

All of our mortgage brokers are registered by the financial conduct authority.

Bad credit guarantor mortgages

Guarantor mortgage lenders aren’t likely to treat poor credit mortgage applications differently than other types of lenders. Guarantors are unlikely to help borrowers whose credit ratings are too low for providers to accept.

However, our advisors can help you find lenders that will be happy to lend to customers with the following information, regardless of whether or not they have backing from an experienced guarantor.

  • Credit history is not required.
  • Credit score low
  • Late payments
  • Mortgage payments not made
  • Defaults
  • CCJs
  • IVAs
  • Debt management schemes
  • Repossessions
  • Bankruptcy
  • Payday loans
  • Multiple credit problems

Some lenders, especially mainstream ones, might not be able to offer you favourable rates or even turn you down completely if you have any of these issues against your name. A specialist mortgage provider may take into consideration the severity and age, as well as the other eligibility requirements.

Age limits

Many mortgage lenders will only accept applicants over 21 years old. A specialist provider may be needed if you are younger. Some lenders may allow another relative to act as your guarantor if you are a senior borrower.

However, these deals can be more difficult due to fewer lenders, stricter eligibility, and because some providers prefer that the guarantor be a parent or grandparent. You can borrow for your retirement using a guarantor.

Some lenders won’t lend mortgages to people over 75 years old, while others will extend loans to those aged 85 or older. However, a minority of lenders will lend to retirees of any age in the right circumstances.

Is there a guarantor mortgage for those over 70?

The theory is that yes. While some lenders won’t accept grandparents, parents or step-parents to be guarantors for elderly borrowers, others may allow other family members or close friends to do so.

Some lenders have age restrictions on all mortgages. They won’t accept anyone older than 75. Some lenders will allow you to borrow up to 85 years old, while a minority may not require an upper age limit if they are confident that you can pay the mortgage in retirement.

It may be more practical to consider equity release with a lifetime mortgage if you are an older borrower who wants to use a younger guarantee, possibly to make it easier to borrow money on your property.

Is there a maximum age limit for mortgage guarantors?

A few lenders have age limits that a guarantor must meet to be eligible for a mortgage. Other providers may have a maximum age limit for the guarantor, but they might ask that the loan be closed by the time the guarantor turns 75 or 80.

Guarantor mortgages available for first-time buyers

Yes, absolutely. Some lenders won’t offer you a mortgage without a guarantor clause if your first-time buyer is present. Some providers will only approve these deals for customers purchasing their first home. They won’t approve them for anyone who is remortgaging or moving house. Guarantor mortgages can be a great fit for first-time buyers who might have low incomes or struggle to find a deposit.

Can you have a guarantor for a Help to Buy Mortgage?

It is not often. As far as most lenders are concerned, government schemes like Help To Buy, Right-to-Buy and Shared ownership can’t be used with a guaranteed mortgage.

If you cannot meet the lender’s affordability requirements or cannot qualify for these programs, there may be alternatives.

For example, an additional person could be added to your mortgage.

Bad credit is a problem for first-time buyers.

Yes! Yes. Guarantor mortgages can be used to help first-time home buyers. Some providers overlook bad credit if your guarantor passes the eligibility and affordability checks. Your credit score and other factors may also be considered when deciding whether to lend.

What is the maximum amount I can borrow?

The lender will use a guarantor mortgage calculator to determine how much you can borrow. To determine your affordability, they will consider your income, credit score, and the financial situation of your guarantor.

Lenders may use different methods to determine your affordability, so the outcome might not be the same for every lender. Many lenders will give a mortgage to eligible borrowers based on their income.

Some will allow borrowers to borrow up to 5x, while others will let borrowers borrow up to 6x.

If the multiples aren’t sufficient, the provider may be willing to lend more if a close friend or family member agrees to serve as a guarantor. To achieve this, you will generally need to have exceptional circumstances.

A lender may be willing to lend you £180,000 if you are eligible for a £150,000 outright mortgage with a guarantor. However, the amount you are allowed to borrow will vary by provider.

 

Guarantor mortgage lenders

Under the right circumstances, some of the UK’s major lenders, such as banks and building societies, will offer guarantor mortgages.

These UK lenders are some of the most well-known to offer guarantor loans…

  • Bath Building Society
  • Kent Reliance (Subject only to affordability and the guarantor’s age).
  • Vernon Building Society (Borrower must have the ability to pay 70% of the mortgage payment)
  • Swansea Building Society

These products can also be offered by specialist lenders that cater to niche borrowers, such as those with bad credit.

This market is huge, and specialist advice from a broker with market access is a great way to ensure you get the best rate for your guarantor mortgage.

It is important to seek specialist advice.

Access to all the markets is important to ensure you are matched up with the right lender for your goals, needs and circumstances. For various reasons, it’s not always the best choice to approach a major provider.

These include, at the time of writing:

  • You would not be able to contact Halifax for a guaranteed mortgage if you tried. This bank stopped issuing guarantor loans back in 2010.
  • Natwest does not offer guarantor mortgages.
  • Santander doesn’t offer guarantor mortgages.
  • HSBC doesn’t offer guarantor mortgages
  • Virgin Money doesn’t offer guarantor mortgages
  • Lloyds does not offer guarantor mortgages anymore
  • Nationwide guarantor mortgages typically come with strict underwriting criteria, a capped loan-to-value (LTV) ratio of 85 per cent, and strict underwriting requirements.
  • Barclays’ take-on a Guarantor Mortgage is a family Springboard Deal that requires the guarantor to make a 10% deposit into a savings account. This won’t help if your guarantor has only a 5% deposit or your income is very low.
  • Aldermore mortgages that are guarantor mortgages must be at least 70 years old by the end of the guarantee period. Specialist lenders may have more flexibility in this regard.

You may encounter restrictions from some UK mainstream lenders or be turned away by default. It is best to find a broker who has access to the entire market and can compare guarantor loans to connect you with the right provider.

Today, get matched with a guarantor broker mortgage broker

Guarantor mortgages are an option for those who have difficulty getting approved for a mortgage. However, it is wise to seek professional guidance before applying.

If you apply for this type of mortgage, a broker specialising in it can help you determine if it is the right choice and ensure you get the best deal.

There are two types of guarantors: whole loan guarantors or shortfall guarantors. Each lender has its criteria for a mortgage with lenders.

Most require that the guarantor can afford the entire loan amount, while a few only require that the guarantor can afford the shortfall.

Full loan guarantor: This is the most commonly used guarantor criteria. Lenders are trying to lower the risk by requiring that the guarantor accept responsibility and provide coverage for the entire mortgage.

The parent guarantor must be able to prove that they can afford the entire loan. A borrower may need a 140k mortgage but only 110k income. The guarantor must still have sufficient income to cover the entire 140k.

Some guarantors may not be able to do this, as the lender will consider any other outgoings like their mortgages or credit obligations.

Shortfall Guarantor: Rare but possible with some lenders. In shortfall guarantor mortgages, the guarantor is only required to pay the excess or the remaining amount the borrower cannot afford.

If a borrower requires a mortgage for 140k but cannot afford 110k, the guarantee would need to show that they can afford the remaining 30k.

 

How does a guarantor mortgage affordability work?

It is not always as simple as it seems to apply for and qualify for a guarantor loan. Although the guarantor doesn’t have the property and is not on the mortgage deeds, they are still assessed as applicants (credit score, income, age, and other commitments like loans, credit cards, or mortgages).

Lenders consider income and outgoings to determine how much the guarantor can borrow and afford. The UK currently assesses guarantor income based on employment basic income, overtime and bonuses.

Self-employment income is usually required (usually 2 to 3 years of trading). If you want to know the maximum amount of guarantor mortgage borrowing, UK lenders will multiply your income by 4.

For example, a salary of £30,000 per year would result in a maximum loan of around £120,000. Some lenders can lend up to 5x your income. In most cases, the borrowers’ personal income is not included in any calculation.

The guarantor’s circumstances often limit the mortgage’s length (in years). This is because the main borrower is often older than the guarantor.

Lenders will limit the mortgage term to applicants over 65 years of age. In other words, if a couple is 25 and their guarantor is 40 years old, they must limit the term to 25 years to meet the retirement age of the guarantors.

The monthly payments can become more expensive if the term is cut by many years.

Some lenders understand this issue and will accept the full mortgage term, provided the guarantor is gone within a specified time.

Keep in mind that lenders may limit guarantor mortgage terms at 25/30 years, regardless of age. This should be considered when calculating your monthly budget.

You may have other options if you don’t have a suitable mortgage guarantor or if this type of mortgage isn’t for you.

If you are experiencing a shortage of deposits:

The new government Help to Buy scheme might interest you. This allows you to purchase a property with a 5% deposit at a decent rate. Some lenders will allow you to put your deposit on a personal loan or credit card.

Many don’t allow this because of the higher risk. However, some do, provided you can prove that you can afford it.

If affordability is a concern:

It may be because your guarantor is older or has a lower income. You should consider the following:

  • Ask another family member – It’s possible to have someone other than your parents as a guarantor; see joint mortgages by visiting our guide.
  • Increase your deposit This will reduce the amount you have to borrow from mortgage lenders. We may be able to help you if you have a proposed mortgage guarantor who is willing to help but has not been approved for a guarantor loan. You can remortgage or take out a small secured mortgage on the property to increase your deposit. This will lower the cost of your mortgage and allow you to own the property without needing a guarantor.

Parental help is a great option if you are looking for a mortgage. However, it is not the right choice for everyone.

A mortgage guarantor must usually have a family connection.

Because the lender is responsible for ensuring that the person providing the guarantee is legitimate, it is important to allow relatives to act as guarantors to avoid fraud and other complications down the road.

  • Parents, Adoptive parents and Stepparents
  • Grandparents
  • Brothers and sisters
  • Aunts and uncles
  • Any other relatives of close blood

The above article explains all about guarantors.

You should remember that they don’t have to be blood relatives. Sometimes, however, if there is a good reason, lenders might consider a nonblood relative as a potential guarantor (Step/foster parent, etc.)

Read our guide on who can be a mortgage guarantor for further information.

Our mortgage brokers are regulated by the Financial Conduct Authority and are happy to guide you in the direction to help you have the best mortgage deal.

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