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Mortgage with a guarantor

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Mortgage with a guarantor

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Last reviewed on 29th January 2022

A guarantor mortgage can be a great way of buying a property, especially if you fall short of meeting a lender’s requirements.

Lenders assess mortgages based on risk, but with a guarantor, the risk for lenders is greatly reduced. That being said, the risk is largely placed on your guarantor, as they guarantee the mortgage will be repaid.

What is a guarantor mortgage?

A guarantor mortgage is a loan that is guaranteed usually by a parent or a close family member in return for security, such as savings or assets. If you miss any mortgage payments, then your guarantor has a legal obligation to repay your lender.

A guarantor can be liable for the entire value of the mortgage. That said, there are products that limit the amount a guarantor is liable for.

How do guarantor mortgages work?

Lenders will typically secure a legal charge on your guarantor’s home or savings. Your guarantor’s property can then be used as collateral, should the mortgage remain unpaid. This can be very risky, as your guarantor could lose their home if you don’t repay your mortgage. For this reason, guarantor mortgages are only approved once legal advice has been taken from solicitors.

  • Your mortgage lender will place a charge on your guarantor’s assets or savings
  • The guarantor has a legal obligation to repay any mortgage arrears or risks losing their home
  • Guarantors don’t own any shares of the property being purchased

Who can be a guarantor?

Although friends can sometimes be guarantors, most lenders will require your guarantor to be a family member. Parents and grandparents can be ideal candidates, as they’re typically established financially often with good credit. Some lenders require guarantors to be mortgage-free, whereas others will accept guarantors with enough equity.

Guarantors that are no longer working due to retirement can still be approved but may have to show savings instead of an income. The majority of lenders also require guarantors to have a good credit score.

Family members that can be guarantors include:

  • Parents
  • Siblings
  • Grandparents
  • Stepfamily

What does my guarantor need to qualify?

To qualify, a guarantor will need to:

  • Have adequate savings in the bank
  • Already be a homeowner
  • Have a good credit score
  • Understand their liability as guarantor
  • Be a family member in most cases

Guarantors will also have to meet affordability assessments. For instance, lenders need to be confident your guarantor can pay your mortgage in addition to their own, in the event things go wrong.

Does my guarantor need to be a homeowner?

If your guarantor isn’t a homeowner, there are lenders that may consider savings as collateral instead. In cases such as these, savings would be kept in a bank. Your guarantor would not have access to any funds until a certain amount of your mortgage was repaid.

If your guarantor would prefer to use their savings as security, then you may benefit from a family mortgage. This is where savings are placed in an account and linked to your mortgage. Guarantors can then withdraw their funds once the initial mortgage term comes to an end. This is usually after a maximum of five years.

Read more: How to get a family mortgage

ask a mortgage broker

Who can get a guarantor mortgage?

Applying for a mortgage with a guarantor can be useful in the following situations:

  • If you’re struggling to save for a mortgage deposit
  • You have bad credit or no credit history
  • Your income is too low for a mortgage

If you’ve struggled to get a mortgage in the past, but have an eligible guarantor, then you may qualify. Furthermore, you can unlock some great deals as the risk for lending is reduced.

Learn more: Can I get a mortgage with a low deposit?

Will my guarantor own my property?

Your guarantor will not own a share of your property. Guarantors are also not registered on any title deeds with the land registry. The guarantor agreement is strictly between your mortgage lender and your guarantor.

Guarantors need to have full faith in the person they’re providing a guarantee for. This is why lenders prefer mortgage guarantors to be family members, such as parents. This doesn’t mean to say that your guarantor will own your property, it simply means they’ll have a legal obligation to ensure the loan is repaid.

Can I get a 100% mortgage with a guarantor?

One of the main advantages of having a guarantor is that you will need little or no deposit at all. Some lenders offer 100% mortgages with a guarantor. This is ideal for when you’re struggling to save a deposit, but the rates on offer won’t be the best.

Lenders typically offer the best rates to those with deposits of at least 20-25%. That said, as guarantors are there to minimise a lender’s risk, you may still be able to secure a great deal. This largely depends on your guarantor and the security that’s provided, such as the value of their property or savings that they can provide.

How much can I borrow for a mortgage with a guarantor?

If your income is too low for a mortgage, having a guarantor can be a huge advantage. A low income can result in lenders offering you a reduced loan amount. Even worse, they could decline your mortgage altogether. If you’ve got your heart set on a property, a reduced mortgage amount is simply no use.

If you have a guarantor, a lender may consider your guarantor’s income in addition to your income. This is great for maximising the amount you can borrow. For instance, a lender may offer you a mortgage of £100,000, but with a guarantor, may agree to a mortgage of £140,000.

When can my guarantor be removed from the mortgage?

A guarantor can be removed from a mortgage, but this is subject to your lender’s original terms. Furthermore, it’s impossible to remortgage without a guarantor, until your existing lender consents.

The terms of your mortgage will dictate when your guarantor can be removed from a mortgage. This will either be based on a set number of years or until a certain amount of the mortgage has been repaid. If payments are missed, your lender may extend the time until your guarantor can be removed.

It’s important to check the terms of your mortgage if you wish to remove your guarantor. This will give you a clear indication of how and when your guarantor can be removed.

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About the author

Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.