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Mortgage with a guarantor

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Mortgage with a guarantor

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Last reviewed on 14th September 2023 by Martin Alexander (Mortgage Advisor)

A guarantor mortgage can be a great way of buying a property, especially if you’re unable to buy a property by yourself.

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.

If you’re unsure of whether or not you’re eligible to apply, you can make an enquiry and our experts will discuss your options.

What is a guarantor mortgage?

A guarantor mortgage is for applicants who don’t have enough income to qualify for a mortgage on their own. A guarantor, such as a parent or close family member offers a guarantee that they’ll repay the mortgage if the borrower is unable to.

Guarantors offer security to a lender, 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?

A mortgage with a guarantor works in the following way:

  • 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

Lenders will typically secure a legal charge on your guarantor’s home or savings. Your guarantor’s property or savings 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, guarantors are only approved after taking legal advice.

Who can be a guarantor?

Most lenders will require your guarantor to be a family member. Some lenders require guarantors to be mortgage-free, whereas others will accept guarantors with enough equity. Guarantors who are no longer working due to retirement can still qualify but may have to show savings instead of an income.

To qualify, a guarantor will need to:

  • Be a homeowner
  • Own their own property outright or have a high level of equity
  • Have a high enough income to repay the mortgage if you can’t
  • Legally understand their liability as guarantors
  • Have a good credit score
  • Be a family member in most cases

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

Who can get a guarantor mortgage?

A guarantor mortgage can be suitable 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?

ask a mortgage broker

What are the risks of being a guarantor?

Although having a guarantor can allow you to get a mortgage, there are risks involved:

  • You could lose your home – Lenders may use your home as security for the mortgage. If the mortgage remains unpaid by both the borrower and guarantor, lenders could repossess and sell your property to recover the loan amount.
  • Damage to your credit score – If the borrower fails to repay the mortgage, the lender will expect you to pay any arrears. If the mortgage isn’t paid, then you risk damaging your credit score.
  • Restricted access to savings – If the mortgage is secured against your savings, then you may have a restriction on how much you can spend. In some cases, access can be restricted until most of the mortgage is paid off.
  • Change in circumstance – Although you may be confident that you can be a guarantor, circumstances can change. If your financial situation changes, it could affect your ability to repay the mortgage. Lenders can then use the security you offered to repay the mortgage instead.
  • Damage to family relationships – As guarantors are helping borrowers to get on the property ladder, it can cause strain on a family if mortgage payments aren’t being met.

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?

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.

Can I stop being a mortgage guarantor?

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 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

Martin Alexander
Senior 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.