If you’re struggling to get on the property ladder or need help to move up it, a guarantor mortgage can be a good solution. A guarantor is typically a parent, grandparent or other family member — you may even have a close friend who’s happy to help you out. But they’re likely to be a homeowner and, therefore, paying off their own mortgage. So, can someone with a mortgage be a guarantor?
What is a guarantor mortgage?
First, we’ll explain what a guarantor mortgage is and how it works. This type of mortgage enables someone to guarantee your mortgage payments should you be unable to make them. Your guarantor needs to meet the lender’s eligibility criteria and pass their affordability checks before signing a legal agreement confirming that they will cover your mortgage payments if necessary.
As well as signing this legal agreement, your guarantor needs to provide security for the lender. This is usually in the form of savings or their own property. If you fail to make your mortgage payments, they are risking their asset. Therefore, it’s essential for your guarantor to take independent legal advice before committing to this mortgage.
Unlike some other mortgages that allow help from others, such as a joint mortgage, your guarantor won’t be named on the deeds for your property. This means that they won’t have any rights over it and you can, therefore, enjoy sole ownership. Your guarantor, in turn, won’t have to worry about paying a stamp duty surcharge for an additional property.
Once you’ve reduced your mortgage balance by an agreed amount, the lender can review the terms of your mortgage and release your guarantor from their obligation.
Who can be a guarantor?
Anyone can be a guarantor, subject to the lender’s terms. Usually, a parent or grandparent takes up this role. However, another family member or a close friend can act as your guarantor, depending on the lender’s restrictions. As mentioned above, they have to provide security for the lender so must either be a homeowner or have significant savings. For the latter, an amount of 5–20% of the property’s value is usually required.
Your guarantor can be employed, self-employed or retired. The lender will check that they have adequate disposable income to cover your mortgage payments should the need arise. A strong credit rating is also required and a maximum age, such as 75, at the end of the mortgage term is usually set.
Can someone with a mortgage be a guarantor?
Whilst some lenders prefer a guarantor to own their home outright, many lenders accept guarantors who have an outstanding mortgage. A certain amount of equity is usually required in this case. During the affordability checks, the lender will assess your guarantor’s income and expenditure. They’ll ensure that your guarantor can comfortably cover both their mortgage payments and those for your property.
Who is a guarantor mortgage suitable for?
This type of mortgage is ideal if you’re a first-time buyer and can’t afford to save a deposit. Lenders accept small deposits or even offer 100% guarantor mortgages so that you don’t need to pay any deposit at all. It’s also ideal if you want to buy a property but have a low income or an irregular one, such as if you’re self-employed. As your guarantor has to have a strong credit score, this also gets around any issues associated with a low credit score, a poor credit score or no credit history at all.
You may have no issues with your income or credit score at all but have found a property that’s out of your price range. In this case, having a guarantor can allow you to borrow more than if applying for a mortgage on your own.
Get the financial solution you need
Does a guarantor mortgage sound like the solution you’re looking for? Give us a call on 01322 907 000 and our mortgage brokers will be happy to talk through this mortgage type in detail with you. It may be that a different financial solution is more suitable for you. You can rest assured that you’ll be given all of the options and offered impartial advice. That way, you can compare the options and make the best choice for your needs.