Do I Need a Guarantor?
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Do I Need a Guarantor?
Sam Bull talks through how guarantor mortgages work and when they can be a good idea.
What is a guarantor mortgage? What is a parent guarantor?
A guarantor mortgage allows a borrower’s family member, usually a parent, to agree to cover the mortgage payments should a borrower not be able to pay. It’s as simple as that.
Do mortgage lenders still accept guarantors? Is it easier to get a mortgage if you have a guarantor?
Yes, there are lots of mortgage lenders who are still happy to accept guarantor mortgage applications – but not every lender does this.
If you do qualify for a mortgage on your own, it would usually be cheaper and easier to apply for a mortgage in your own name rather than applying via the guarantor route. So it’s not necessarily easier to get a mortgage with a guarantor. It depends on the situation and what the right option is for your specific circumstances.
How does a guarantor mortgage work?
Applicants who cannot get a mortgage on their own, usually due from not passing affordability or a credit check, could apply for a guarantor mortgage. The mortgage lender will assess the guarantor to make sure they have sufficient income or assets to cover the mortgage payments should the main borrower not be able to pay.
Some lenders are happy to accept a guarantor based on their current assets – they’ll look at the guarantors’ savings or the equity in their existing property. That may be enough to get them approved.
Will I be able to borrow more with a guarantor mortgage? How much of a mortgage can I get with a guarantor?
The new mortgage lender will generally carry out an affordability check on the guarantor. They’ll make sure the guarantor can afford the new mortgage based on their income. They’ll also take into account the guarantor’s existing and anticipated household bills.
Lenders will want to make sure that the guarantor can cover both households’ costs. In general, they are happy to lend up to five times income, so that doesn’t really change whether it’s a normal mortgage or a guarantor mortgage application.
Can you get a 100% mortgage with a guarantor?
No, mortgage lenders do still require a minimum deposit of 5%. The maximum Loan to Value would be a 95% mortgage and that’s subject to affordability and the property type, as well.
Do guarantor mortgages have higher interest rates?
Guarantor mortgages are classed as a specialist type of mortgage product, and therefore interest rates will be slightly higher than with your typical high street deal.
Because not all mortgage lenders are in the market for guarantor mortgages, there’s less competition. Where there’s less competition, interest rates may be slightly higher.
Who is a guarantor mortgage suitable for? Can anyone get one?
Guarantor mortgages are suitable for applicants on a lower income or with a lower credit score. They’re designed for people who can’t necessarily get a mortgage on their own and need assistance from that guarantor.
Typically they are First Time Buyers with a lower income. They would be perfect to seek the assistance of a guarantor when buying the first home.
What documents should I provide for a guarantor mortgage?
The documents required for a guarantor mortgage don’t differ from that of a normal residential mortgage application. The mortgage lender will generally require the latest three months’ pay slips and three months’ bank statements. They need proof of identification and address and some proof of deposit as well.
Lenders require these documents from both the main borrower and the guarantor, as well.
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Who can guarantee a mortgage?
It depends on the mortgage lender, but typically it is a close family member or friend who would offer to guarantee the mortgage.
The guarantor should be at least 21 years old and below the age of 75. Guarantors can be working or retired. Either way the new mortgage lender will carry out that affordability assessment to make sure that they are suitable to guarantee the mortgage.
What are the risks of a guarantor mortgage?
Being a guarantor to a mortgage does come with potential risks. Should the borrower miss some payments on the mortgage it would show as a missed payment on the credit file of both the borrower and the guarantor. So there are potential implications on both their credit files.
Secondly, should the guarantor’s financial circumstances change, they would still be expected to make the mortgage payments should the borrower not be able to. This could potentially put strain on the relationship with the guarantor, should the borrower not be in a position to make the payments.
How much does a guarantor need to earn for a mortgage?
There’s no minimum income requirement to be a guarantor. However, the new mortgage lender will carry out that affordability assessment to make sure that the guarantor is financially stable and has sufficient income or savings to cover the new mortgage liability.
What happens if my guarantor is unable to make repayments too?
Should both the borrower and the guarantor be unable to make the contracted mortgage payments, the lender would usually try to come to some sort of arrangement to pay.
They might offer an interest only period or a payment holiday – but it’s very important not to just ignore the mortgage lender. It’s important to work with them and come up with a plan.
Ultimately, should both the borrower and the guarantor be unable to make the mortgage payments, the lender could potentially take legal action to recover their money. That could mean a court order for the guarantor to make the payments, going after the guarantor’s savings or even starting repossession proceedings.
Can I get a guarantor mortgage for a Buy to Let property?
Technically, yes, but I’ve checked the market and there are no mortgage lenders at all currently offering guarantor Buy to Let products. [podcast recorded in March 2024]
Can a parent be a guarantor if they are retired?
Yes, they can. There’s no requirement for a guarantor to be working and therefore a retired parent can qualify. The lender will just assess the guarantor’s ability to make the mortgage payments should the borrower be unable to pay.
Do guarantors get credit checked?
Yes, the guarantor will be credit checked as part of the initial Agreement in Principle and again as part of the full mortgage application. Both the guarantor and the borrower are usually credit checked. Mortgage lenders generally use either Experian, Equifax or Transunion for the credit checks.
Can I stop being a mortgage guarantor?
Should the circumstances of the borrower change, they may want to remortgage the guarantor mortgage onto a normal residential mortgage. If their income allows them to do so, there’d be no need for the guarantor to continue.
Or, if the property is sold, they can be removed as a guarantor.
Can I get a guarantor mortgage with bad credit?
If a borrower has issues with their credit history from missed payments, defaults, CCJs etc., it may still be possible to get a mortgage on their own without the need for a guarantor. But if this is not available then they could look to proceed with a guarantor as a mortgage option.
How do I get a guarantor mortgage? What’s the process?
This is a specialist type of mortgage, so It’s best to get the correct advice. We would always recommend working with a mortgage broker like JB Mortgages.
We would complete an initial fact find with the borrower and guarantor and then make the appropriate recommendation. We would seek out the cheapest suitable mortgage option and arrange the Agreement in Principle. Then we’d complete all the paperwork for the full mortgage application.
Your home may be repossessed if you do not keep up with your mortgage repayments.