Right To Buy Guarantor Mortgages
A guarantor mortgage is a good option for a first-time Right To Buy homeowner. As a long-time public sector tenant looking to purchase your home through this government scheme, you will be looking to take advantage of the Right To Buy discount you receive to secure a mortgage.
You may barely have a deposit or don’t earn enough to qualify for the Right To Buy mortgage. If so, having a relative who can help financially means a guarantor mortgage might be a viable option for you to have a mortgage application approved.
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What is the Right To Buy scheme?
The Right To Buy scheme is an official government scheme introduced to the public by Margaret Thatcher in 1980.
It enables public sector tenants in England that rent council houses, and those in a housing association, to buy their rented homes at discounted rates. English residents who couldn’t afford to before can now invest in property.
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What are guarantor mortgages?
Many borrowers who qualify for Right To Buy are first-time buyers with no money for deposits. You may have a poor credit score or be in a low-income financial situation, making mortgage applications challenging to approve. A guarantor mortgage, or family-assisted mortgage, could be a potential solution to this problem.
A guarantor mortgage would require a relative of yours to cover monthly repayments if you aren’t able to make them. Two types of guarantors exist:
- shortfall guarantors and whole loan guarantors
- individual lenders have their mortgage criteria for each.
Further detail on both is available here.
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What part does a Right To Buy guarantor play?
The Right To Buy guarantor will partly finance the borrower’s mortgage. Besides covering any monthly repayments, if you cannot, the guarantor may have to deposit an initial sum of money into a savings account or secure a loan against an existing owned property.
In addition, your family member may also need to deposit a lump sum into a savings account or secure a home loan against an already-owned property or equity to stand as your guarantor for this mortgage deal.
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Savings account deposit
The lender holds an agreed sum of the mortgage loan guarantor’s savings in a secure account for a period ranging between three and five years or until the total mortgage repayment occurs.
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Property or equity as security
The lender places a charge on the security asset, meaning that the mortgage loan guarantor could have the property or equity repossessed if they or the borrower fail to make consistent repayments.
Your relative must sign a legal agreement to cover any mortgage repayments you can’t settle. Standing as the Right To Buy mortgage guarantor means the relative will have to be listed in the title deeds of your property but will not be entitled to any share of that property.
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Who can stand as a Right To Buy mortgage guarantor?
Lenders will generally recognise the following people as potential guarantors:-
- Parents or legal guardians
- Spouses
- Grandparents
- Children of legal age
- Other relatives
Lenders, as a rule, will allow most family members to stand as guarantors for Right To Buy mortgages as long as they meet the guarantor criteria stipulated by the lender’s policy.
Parents or legal guardians
Perhaps you want to support your child by being a guarantor for the Right To Buy mortgage? You will have to meet the requirements of the lender to be eligible to do so.
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Own your property or hold enough equity
Fully owning your property is not compulsory for all lenders, with specific lenders happy if you own a third of the property.
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Earn enough income
You should have enough income as lenders will need verification of your ability to cover mortgage payments if your child cannot.
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A good credit score
Decent credit history and rating indicate to lenders that you are financially stable enough to cover repayments if your child defaults.
In most cases, a parent or legal guardian, like a step-parent, can secure a 100% mortgage as a parental guarantor. It is not a hard-and-fast rule, though.
Other family members
Apart from parents and step-parents, some Right To Buy lenders will only allow grandparents to be guarantors. Others stipulate that only a single parent, step-parent, or grandparent can be a guarantor.
You can also contact Loan Corp in this regard, and our guide on who can be a mortgage guarantor can also assist you in more detail.
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How to secure a guarantor mortgage
The most crucial part of securing a guarantor mortgage is, before you apply, finding a family member who trusts you to stand as your guarantor. After that, you should see a mortgage broker who deals with Right To Buy mortgages to suggest the best guarantor mortgage lenders for your application status.
Loan Corp can introduce you to an FCA-registered broker who specialises in guarantor agreements and Right To Buy mortgages, so give us a call as soon as you’re ready to proceed.
No deposit guarantor mortgages
With the help of a suitable guarantor, you can get a 100% mortgage without any deposit if you have a guarantor. Lenders can offer 100% loan-to-value (LTV) deals if the guarantor is financially and otherwise eligible.
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, as these products are not available under any other circumstances. There may be other options if you have a low down.
LTV guarantor mortgages
After a successful lender screening process, you and your guarantor could qualify for an LTV guarantor. Lenders will grant you only a 5% deposit for a 95% LTV mortgage if you are eligible.
Paying this 5% deposit allows the mortgage lender to cover thorough affordability checks on your guarantor, enabling you to borrow more than you could have previously.
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How to secure the best mortgage rates
Mortgage rates can change frequently, but by meeting guarantor eligibility criteria with various banks and lenders, and speaking with mortgage brokers who have access to all the markets, you can get the best deals.
Enquire with Loan Corp for more information on the best UK Right To Buy mortgage interest rates. We’ll put you in touch with an expert broker registered with the FCA, who will speak with you telephonically and put you in contact with a lender that suits your requirements and circumstances.
What is the most a Right To Buy applicant can borrow?
Lenders use various methods to gauge the affordability of mortgage applicants, so there is no set standard on a maximum borrowing amount. Invariably a lender will authorise the mortgage based on the applicant’s income and the amount subtracted from the Right To Buy discount.
A reasonable average standard for Right To Buy mortgages is five to six times the applicant’s salary. Should these multiples not be enough, the lender may request that a family member agrees to serve as a guarantor, then change the mortgage to guarantor mortgage status.
Which lenders offer Right To Buy guarantor mortgage options?
UK banks and building societies will offer these mortgages depending on the circumstances involved. Often, lenders that cater to borrowers with circumstances that aren’t ideal, like self-employed people and people with bad credit, accept applicants that high street banks would turn away.
Bad credit guarantor mortgages
Guarantor mortgage lenders probably won’t assess mortgage applications with a poor credit history differently from other lenders. They won’t help borrowers with credit ratings that are too low to accept.
Our Loan Corp advisors can assist in finding mortgage brokers and lenders who will help customers who have experienced problems like those mentioned below, whether they have a guarantor backing them or not.
- No credit history
- Low credit scores
- Late payments
- Defaults
- County court judgements
- Individual voluntary arrangements
- Debt management scheme involvement
- Repossessions
- Bankruptcy
- Payday loans
- Multiple credit problems
Based on the above, some lenders won’t offer favourable rates, while others may reject your application altogether.
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How lenders assess guarantor mortgage affordability
Even though guarantors aren’t buying property and won’t appear on any mortgage deeds, they still get assessed similarly to borrowers. Income, credit score, age, outstanding loans, credit card balances, and existing mortgages all count towards the assessment.
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Income and expenditure
Guarantor income and outgoings determine how much the applicant will be able to borrow. This income includes basic pay, overtime, and bonuses. Certain lenders will lend five to six times your income. For guarantor mortgages, the guarantor’s income, not the borrower’s, will usually be used in the calculation.
Self-employed guarantors must provide bank statements and tax returns for two to three years of their last trading.
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Age
The guarantor’s circumstances can limit the length of a mortgage. As a primary borrower is often younger than a guarantor, the retirement age of the guarantor will define the length of a mortgage.
Most lenders limit a mortgage term to the year an applicant turns 65, so regardless if a borrower is only 20, if the guarantor is 43, the set mortgage repayment term will be 22 years. The monthly repayments will increase depending on the repayment term, so it is in a borrower’s best interest to have a younger guarantor.
Some lenders understand these intricacies and will accept a full mortgage term if guarantor involvement and responsibility ceases within a specified period. Other lenders have set guarantor terms of 25 to 30 years, with no consideration of age. It depends on with whom you deal.
Other mortgage options exist if this type of Right To Buy mortgage doesn’t suit your circumstances.
At Loan Corp, we will always do our utmost to ensure you’re in touch with suitable mortgage brokers.
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FAQs
What should I do if I’m self-employed and don’t think my credit score is good enough?
You should receive specialist advice if you fall into the above category. If you apply for a Right To Buy mortgage, especially one involving a guarantor, specialist mortgage brokers will help to determine if it is a viable option for you and assist you in finding the best deal.
How can I work out how much I can borrow?
Many lenders use a mortgage calculator for guarantors similar to the one we have at Loan Corp. This aids in determining how much you should be allowed to borrow. Numerous factors, such as credit score, income, and the general financial position of you and your guarantor, are considered when determining your affordability.
Can I ask somebody besides a family member to stand as a guarantor?
Some lenders will consider siblings, children of legal age, extended family members, and even family friends to adopt the guarantor role, but these are very difficult to find. Right To Buy mortgage brokers can offer you the necessary advice for your specific situation.
Get started onlineReferences:
https://www.gov.uk/right-to-buy-buying-your-council-home
https://www.loancorp.co.uk/mortgages/mortgage-repayments/
https://www.loancorp.co.uk/mortgages/mortgage-application/
https://www.loancorp.co.uk/mortgages/guarantor-mortgages/types-of-guarantor-mortgage/
https://griffinandking.co.uk/individual-voluntary-arrangements/