GUARANTOR MORTGAGES EXPLAINED

By Beccy Stephenson on

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Guarantor mortgages explained

If you’re struggling to raise a deposit for a new home, you want to change borrower, you’ve just started a new job, if you’re on a low income or have a bad credit score or no credit history, a guarantor mortgage could be the answer.

A guarantor mortgage is a loan used to buy a home with some of the risk taken on by a parent or other close family. They’ll provide a guarantee that, if the borrower doesn’t make their agreed mortgage payments, they will repay the amount borrowed. That means that they could be forced to make up any financial shortfall if your home is repossessed and sold – possibly losing their own home in the process.

The benefits of a guarantor mortgage

The main benefit of a guarantor mortgage is that people who wouldn’t otherwise be able to make the move they want will qualify for anything up to 100% of their new home’s value depending on the collateral offered.

With a guarantor mortgage, you may be able to borrow a larger amount than you would qualify for on your own. The guarantor’s income and assets can be taken into account when assessing your affordability, potentially enabling you to purchase a more expensive property or secure a larger loan.

Another benefit of a guarantor mortgage is that it improves your chances of getting approved for a mortgage, especially if you have a low income or a limited credit history. The presence of a guarantor provides additional security to the lender, reducing their risk and increasing the likelihood of loan approval.

With a guarantor mortgage, you may be able to borrow a larger amount than you would qualify for on your own. The guarantor’s income and assets can be taken into account when assessing your affordability, potentially enabling you to purchase a more expensive property or secure a larger loan.

If you have a guarantor with a strong financial profile, it can positively impact the interest rate you receive on your mortgage. Lenders may offer more favourable terms, including lower interest rates, as they consider the guarantor’s financial stability and willingness to support the loan.

Another advantage of a guarantor mortgage is that it may allow you to secure a mortgage with a smaller deposit. Lenders often require a minimum deposit percentage, typically around 5-10% of the property’s value. However, with a guarantor, some lenders may accept a lower deposit or even offer 100% financing, which can make homeownership more accessible.

The really good news is that, when you’ve built up equity in your home, you should be able to remortgage and switch to a mortgage deal that doesn’t need the help of a guarantor. Your new lower loan-to-value (LTV) means you should qualify for a better mortgage rate too.

How can I qualify for a guarantor mortgage?

 Your guarantor will need to be a parent or other close family member or someone with a close long-term relationship to you.

  • Your guarantor will need to be over 21 years old.
  • Your guarantor should have a strong financial position and a good credit history. Lenders will assess the guarantor’s ability to repay the mortgage if the borrower defaults.
  • Your guarantor will need to have a property that will be secured by a legal charge by your lender or savings that will be held by your lender in a locked account.
  • Your guarantor needs to demonstrate sufficient income and affordability to cover the mortgage payments in case the borrower is unable to pay. Lenders may require the guarantor to provide proof of income, such as payslips or tax returns.
  • Your guarantor must receive legal advice so they’re aware of the risks involved.

If you’re trying to get onto the property ladder and you think a guarantor mortgage will help make it happen, talk to the mortgage experts at Mortgage Decisions on 03454 500200.

Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

Beccy Stephenson
Beccy has over 14 years’ experience in the financial services industry, assisting and liaising with clients to ensure that their journey throughout the homebuying process runs smoothly. Helping clients to achieve their financial goals is something that Beccy feels is very rewarding. She also supports her colleagues by sharing her knowledge and enthusiasm for the business.
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