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What is a parent guarantor mortgage?
A guarantor mortgage is where you’d have someone, typically a parent or other close family member, who comes into a mortgage arrangement. The idea is that the lender knows they are there in the background to ultimately pay the mortgage payments if the borrower can’t do so.
It would typically only be when that point is reached that they would be expected to cover the mortgage payments.
Do mortgage lenders still accept guarantors? Is it easier to get a mortgage if you have a guarantor?
Yes, mortgage lenders do still accept guarantors. A guarantor is only expected to step in if the borrowers have a problem. Typically, you only have one guarantor. Today, a lot of lenders don’t do guarantor mortgages anymore.
It’s expected that after a period the borrowers would be able to stand on their own two feet and cover the borrowing in their own right, without that guarantor there. Lenders look to do this typically for people who are part-qualified in a profession – although that’s often hard to determine.
Quite commonly, other schemes are used where a family member or a close friend can help with affordability on a mortgage. They are treated equal to the borrowers from the start – they are effectively an extra mortgage borrower rather than a guarantor.
The jargon can be unhelpful. A lot of lenders will say that they have a guarantor arrangement when it’s not actually a pure guarantor scheme. It’s often known as Joint Borrower Sole Proprietor mortgage – which we’ve done another podcast on.
That’s what they’re actually referring to when they say they do guarantor mortgages. So speak to a mortgage broker. We’ll work out which of the schemes suits best. It might be a proper guarantor mortgage, or it might be one of these other mechanisms. The ultimate aim is to enable somebody to borrow a little bit more money than they otherwise could, to get into their first home.
What are the types of guarantor mortgage?
There are different types under the guarantor ‘umbrella,’ if you like. You’ve got the pure guarantor mortgage where someone can step in if things have gone wrong. If the mortgage is already in default, the guarantor is then expected to step in.
There’s also the Joint Borrower Sole proprietor mortgage, where you’ve got extra people on the mortgage from the start who are contributing towards that mortgage affordability. The lender assesses the application on the income and outgoings of all borrowers, to determine if it’s affordable.
They’re not expecting this other person to disappear in the future when the main borrowers are able to stand on their own two feet. Joint Borrower Sole Proprietor arrangements are more of a long term thing.
Will I be able to borrow more with a guarantor mortgage? How big a mortgage can I get with a guarantor?
To put it bluntly, if you couldn’t borrow more with a guarantor, there’d be no point in doing it. The whole point of it is to borrow more.
Specifically how much you can get will depend upon the individual circumstances: your income and outgoings along with the income of that guarantor. A mortgage broker will sit down with you and work out what you can do on your own and what you can do with another person brought into the equation. It will differ between lenders. Each one has their own way of looking at affordability.
The other difference between the guarantor mortgage and the Joint Borrower Sole Proprietor arrangement is that typically you can only ever add one guarantor to a mortgage. It might be you actually want both your mum and dad to help – in which case Joint Borrower Sole Proprietor works better.
Some lenders will use mum and dad’s income instead of the borrowers. Or it might be that the lender will aggregate everyone’s incomes together to do an affordability calculation. Again it depends on the circumstances, but with guarantors you are restricted to only having one person helping.
Can you get a 100% mortgage with a guarantor?
Let’s take this as including all the different schemes available where parents can help their kids. There are schemes that allow close family members to help out without lending their income to support the mortgage.
It might be that a parent or grandparent has got a chunk of money available to put towards the purchase – but they don’t necessarily want to put it into the purchase as a deposit. There are schemes where you can lodge 10% of the value of a property with the lender in a savings account. They take that as security and keep hold of it for five years rather than take it as a deposit.
It means the borrowers can potentially buy somewhere without putting a deposit down. There’s always that 10% in a savings account for the lender to call on if the borrowers aren’t able to maintain the mortgage payments. That’s an interesting scheme that’s quite novel – a few lenders do that now.
Do guaranteed mortgages have higher interest rates?
Not usually, but some lenders do have specific rates for different schemes. Whether it’s guarantor, Joint Borrower Sole Proprietor, or the savings account approach, often there will be specific rates for those schemes. It won’t necessarily be higher.
It all goes into the mix. A mortgage broker will work out a combination of the best deal, the best amount of borrowing and the easiest route through to get to where you want to be.
How do you qualify for a guarantor mortgage?
It would be suitable if you want to buy a property that’s just outside your affordability, or you’d like to borrow a bit more but you just can’t do it at the moment. You will need to have a family member there that’s willing to help out in some way.
Often that’s the starting point we have with clients. They know that they can’t quite do what they want to do on their own. They’ve got a family member who can help, but they don’t quite know the route. That’s what we would then work out with them.
What documents should I provide for a guarantor mortgage?
It’s the same as if you’re just a normal mortgage applicant. The lender will want to check out your income and outgoings and your credit history. It’s very straightforward – typical documentation is your ID, payslips, bank statements and proof of deposit.
Who can guarantee a mortgage?
It’s typically a parent, but it can also be another close family member. There’s also something called a Reverse Guarantor Mortgage, which is a term some lenders use where the child is helping the parent – that’s possible too.
Usually it’s parents helping children, but it can be the other way round. In all cases the guarantor is usually a close family member.
What are the risks of a guarantor mortgage? What are the downsides of being a guarantor on a mortgage?
The risk of being a guarantor is that you’re going to be expected to step in if the borrowers can’t pay the mortgage – you will be expected to cover that whole mortgage payment on your own if the borrowers can’t. And who knows what the future holds?
That’s why it’s really important to get advice from a mortgage broker as to whether it’s the right route for you and your circumstances. It might be better to choose something termed as ‘guarantor’ but not a true guarantor product: a Joint Borrower Sole Proprietor scheme, for example.
Also, going on a mortgage to help somebody can potentially impact your own ability to borrow in the future. Any new lender will want to know about that existing arrangement.
Whenever we give advice to a client we always look at everything holistically and consider what could happen in the future, so we can work out the best way to structure things.
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How much does a guarantor need to earn for a mortgage?
Most lenders don’t have a minimum because it’s all based on affordability. Sometimes it might be that the borrowers are only a little bit short to buy the house or flat they want.
We might only need to bring in a little bit of extra income. It could be that somebody is working part-time, they could even be retired with a pension income. It really depends on the circumstances. Usually there isn’t actually a minimum figure that someone needs to be earning.
What happens if my guarantor is unable to make repayments too?
These are very rare circumstances, of course. But if the borrowers themselves have had financial difficulties and aren’t able to maintain the mortgage payments, and the guarantor also is unable to make the payments, it’s time to speak directly with the lender.
They may be able to offer assistance – there’s the potential for a payment holiday, for example. Ultimately, though, it can come to the point where you have to sell the property. You might have to downsize.
Or, it might be a case of remortgaging to another lender who has a different approach to affordability. It’s not always going to be the case that someone’s going to be at risk of losing their home, because that’s the very last step that any lender would take.
Ultimately it’s about looking at how that mortgage can be maintained and that property be kept. It might be that a different person can take the place of that guarantor. These things can be arranged.
Can I get a guarantor mortgage for a Buy to Let property?
It’s less common, but it is possible, particularly if you’re looking at a Joint Borrower Sole Proprietor deal where you might not want both borrowers owning the property in a Buy to Let scenario.
You can have two or three people on a mortgage and maybe only one or two of them own the property. That’s perfectly possible.
But Buy to Lets are more commonly assessed on the rental income that that property is going to generate. So it’s less common for a guarantor to be needed. It’s possible, though, and again depends on the circumstances.
Can a parent be a guarantor if they are retired?
Yes, absolutely. Most lenders don’t have a maximum age for borrowing. If your parents are already retired or are nearing retirement, the lender may want to know what their pension income is going to be.
It’s all about whether that income is sustainable and how the overall income and outgoings all fit together.
What happens if my guarantor dies?
It’s the same circumstances as if another borrower dies. The lender will deal with the situation sensitively and positively, to work out the best way of keeping that mortgage going to keep the home.
It might be that by the time the guarantor has passed away, the borrowers are able to sustain the mortgage on their own anyway. It might be that another guarantor can take their place. It might be that you remortgage to another lender that deems it to be affordable without a guarantor.
There are lots of different options to look at. The crucial thing is that lenders take a positive approach to these sorts of circumstances. They deal with borrowers dying every day.
What’s perhaps even more important, is to make sure that borrowers and guarantors are protected so that in the event of a death, the mortgage can be paid off. Life insurance can protect a mortgage, whether you’re a guarantor or a borrower, so that if you do pass away nobody’s at risk of losing their home.
You don’t have to consider other changes because there’s a lump sum available to pay the mortgage off. Your mortgage broker will be able to go through that for you.
Do guarantors get credit checked?
Yes, absolutely, the circumstances and credit history are checked out the same as a mortgage borrower. There are no differences there.
Can I get a guarantor mortgage with bad credit?
It depends. A lot of people I speak to think they have bad credit, and what they mean is they’ve had a missed payment on a mobile phone or credit card. That’s not usually a big issue.
It really depends on how severe or how prolonged credit issues have been. Different lenders have different appetites for adverse credit. There are lenders that will do Joint Borrower Sole Proprietor mortgages where people have had the odd credit blip here and there.
Your mortgage broker with access to a wide choice of lenders will be able to determine the best home for your mortgage.
Can I stop being a mortgage guarantor?
Absolutely – as long as the lender has determined that the borrowers can stand on their own two feet and it’s affordable.
Whether it is a true guarantor mortgage, Joint Borrower Sole Proprietor or another scheme where a helper has been brought in, the lender will determine if that’s appropriate.
Again, it might be that changes in family circumstances mean you want to come off a mortgage as a guarantor. Perhaps the borrowers want to do things on their own. It might be that by moving to a new lender you can get a new affordability calculation and a suitable scheme for what you’re doing.
How do I get a guarantor mortgage?
Speak to a mortgage broker – we have access to the widest possible choice of mortgages for you. A lot of lenders do guarantor mortgages, Joint Borrower Sole Proprietor mortgages and other schemes.
Some of these only lend through mortgage brokers, and we will often have exclusive rates and deals not available direct. We used to say that we save you a lot of shoe leather walking up and down the high street to talk to different banks… but most of the banks are closed now on the high street, so that’s harder.
But you can save yourself a lot of time online doing different searches by speaking to a mortgage broker. We can work out the best route for you.
Often with clients, there’s a combination of factors. It could be the nature of the property they’re buying, the nature of their employment or self-employment, combined with the need to bring in a family member to help them with affordability. What we do as mortgage brokers is get through that jungle of different factors and get to the right solution for you.
Your home may be repossessed if you do not keep up with your mortgage repayments.
The information contained within was correct at the time of publication but is subject to change. Podcast recorded in October 2023. Approved on 10.11.2023.
