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Guarantor mortgages
A guarantor mortgage could allow a loved one to help you get onto the property ladder. Your guarantor will put their home or savings up as collateral, and will agree to step in if you're unable to meet your repayments.
Let our broker partner Mojo Mortgages help you compare your mortgage options. Mojo's experts have access to a wide range of lenders so can recommend deals that suit you and your circumstances.
What is a guarantor mortgage?
A guarantor mortgage is where another person acts as a guarantor by allowing their home or savings to be used as collateral for the loan. If the borrower fails to make their mortgage payments, the lender can ask the guarantor to make up any shortfall.
Guarantor mortgages are designed for those who don't meet the lending criteria for a standard mortgage - perhaps those with a low income, limited credit history or a small deposit. Depending on the lender, you may be able to borrow up to 100% of the property’s value with a guarantor mortgage, which can be particularly useful for first-time buyers looking to get on the property ladder sooner.
How do guarantor mortgages work?
A guarantor mortgage works in a similar way to a standard mortgage, with the borrower making monthly repayments on the loan used to buy a property. Where it differs is that if you are unable to meet your repayments, your guarantor agrees to step in to cover them. Although it’s the named borrower who owns the property (the guarantor won't be named on the title deeds), you are both legally responsible for the debt.
Each type of guarantor mortgage works slightly differently, but usually a guarantor will offer their property or savings as additional security. This means the guarantor's assets may be at risk if the mortgage terms are not met, so it's crucial that potential guarantors seek independent legal advice.
Your guarantor's home is used as collateral
Traditional guarantor mortgages often use a guarantor's property as security, with the lender placing a legal charge against it. To be eligible, the guarantor typically needs to either own their home outright or have a substantial level of equity.
This option carries a significant risk for a guarantor. In the most extreme cases, the guarantor's home may be repossessed if you are unable to make your payments and the sale of your property does not cover the outstanding debt.
Your guarantor's savings are used as collateral
Some guarantor mortgages are secured against savings, which means the guarantor agrees to deposit a sum of money into a special savings account held by the lender.
The deposited sum usually earns interest for the guarantor. However, some lenders offer family offset mortgages where the money is offset against the mortgage interest, which means the borrower pays interest on less of the capital.
Your guarantor gets their money back after a set period of time or once you have repaid a certain amount of the loan. If you miss any repayments, however, the lender can use the cash deposit to make up the shortfall.
Who can be a guarantor?
Banks and building societies usually expect a guarantor to be a close family member of the borrower (usually a parent) or someone with whom they have a close relationship.
Guarantors usually need to be homeowners in their own right. Some lenders may expect them to have paid off their own mortgage in full, although most are less strict about this. Lenders typically expect the guarantor to be financially stable with a good credit history and a high enough income to cover the mortgage repayments if necessary.
Before going ahead, potential guarantors should take independent legal advice to make sure it’s right for them - some lenders will want to see proof of this.
Who are guarantor mortgages suitable for?
Guarantor mortgages may be suitable for borrowers who:
Have either a small or no deposit
Are on a low income
Have limited credit history
Have a poor credit history
If a lender isn’t 100% confident about granting them a standard mortgage, having a guarantor on board can be the clincher.
Lenders will still carry out affordability checks on the borrower and won’t agree to a mortgage if they think the borrower will struggle. A guarantor will also be credit checked to ensure that they are a responsible borrower.
Are guarantor mortgages more expensive?
Guarantor mortgages generally come with higher interest rates than standard mortgages, especially if your lender allows you to borrow up to 100% of the property’s value (as this is riskier for the lender). This means your monthly payments will be higher than if you had taken out a mortgage for the same amount without a guarantor, so you’ll need to make sure you can afford them.
How to find a guarantor mortgage
Not every lender offers guarantor mortgages, and each will have their own set of specific requirements, so it's important to do your research carefully in order to find a mortgage deal that suits both you and your guarantor.
You might find it beneficial to speak to a qualified mortgage advisor like our broker partner, Mojo Mortgages. They'll compare mortgage products from across a wide range of lenders and recommend the most suitable option available for your circumstances.
What are the risks of a guarantor mortgage?
A guarantor mortgage could have a significant impact on both you and your guarantor. Your guarantor should get independent legal advice from a different solicitor to the one you’re using to buy the property so that they fully understand the implications.
Damage to credit score
You and your guarantor's credit scores could be damaged if you default on the mortgage and they are unable or unwilling to cover the payments. This is more likely to happen if taking on the loan has stretched you financially, but could also happen if you suddenly lose your job or your situation changes. This could make it more difficult for your guarantor to get credit, such as a personal loan or credit card, in the future.
Limited access to savings
If your guarantor has had to use their savings as security for the loan, they won’t be able to access that money for a period of time, and they won’t always earn interest on it. They could also lose money if you default on the mortgage, and their savings are used to make up the shortfall.
Risk to property
With some guarantor mortgages, a legal charge is placed on a portion of the equity in the guarantor’s home to act as security. This means that if the borrower defaults and the sale of their home fails to raise enough to pay off the mortgage, the guarantor will be responsible for making up the shortfall and could ultimately lose their home.
Relationship pressure
If the worst were to happen and you defaulted on the loan, resulting in your guarantor losing money or even their home, this could put a strain on your relationship. This is why it’s essential for the guarantor to get legal advice before going ahead and for everyone involved to discuss the implications beforehand.
Alternatives to guarantor mortgages
If parents, grandparents or other members of your family are unable to help you get on the property ladder by buying you a home outright or being your guarantor, there are other ways that families can help.
Gifted cash deposits
If you can afford it, gifting some or all of the amount a first-time buyer needs for a deposit is perhaps the simplest way to help them buy a home. Just make sure you follow the correct procedure by reading our guide to gifted deposits.
It's worth noting that simply having a deposit won't be enough for you to get a mortgage - you'll need to make sure you meet your lender's eligibility and affordability criteria too.
Joint Borrower Sole Priorietor Mortgage
A Joint Borrower Sole Proprietor mortgage (JBSP) is where two or more parties take out a mortgage together, but only one is the legal owner. This allows family members or loved ones to help you buy a home while avoiding the additional stamp duty surcharge on second homes. However, all parties are fully liable for the debt, meaning non-owning borrowers must pay if the owner defaults, despite having no legal claim to the property.
Guarantor mortgages FAQs
Can I get a guarantor mortgage for a buy-to-let property?
Lenders won’t usually give you a guarantor mortgage for a buy-to-let property. But whether and how much they will lend to you is worked out differently with buy-to-let, so it may be easier to take out a buy-to-let mortgage without help.
Buy-to-let mortgages are usually taken out on an interest-only basis, so the repayments are lower than for residential mortgages, which would usually be on a repayment basis. Lenders also look at how much rental income you're likely to get for the property when deciding how much to lend you.
Is a guarantor on the mortgage forever?
No, it is possible to release your guarantor if your financial circumstances have changed or you've built up enough equity.
Your guarantor will usually remain linked to the mortgage until the homeowner has paid off a sizable proportion of the debt. This can be based on a certain number of years of repayments or reaching a lower loan-to-value on the loan – but if the borrower has repayment difficulties in the meantime, this period can be extended by the lender.
Is a guarantor mortgage the same as a family boost mortgage?
There are several different forms of guarantor mortgage, each with a slightly different name and different conditions depending on the lender. Family springboard or family boost mortgages offer ways to help aspiring home buyers purchase a property using security from family members, either in the form of savings or property.
Which lenders do guarantor mortgages?
Lenders that currently offer guarantor mortgages include Beverley Building Society, Loughborough Building Society and Swansea Building Society.
Other lenders may refer to guarantor mortgages in a different way, or might offer similar products such as family assist or family offset mortgages.
You can find out which lenders offer guarantor mortgages and check eligibility criteria using comparison sites or by speaking to a mortgage broker.
How much can I borrow with a guarantor mortgage?
A guarantor mortgage can let you borrow more than with a standard mortgage as you can borrow up to 100% of the property’s value rather than just 95% - generally the maximum allowed by mortgage deals you take out without a guarantor. You may also be able to get a bigger loan than the lender would otherwise think you can afford.
However, the amount you will be able to borrow will still depend on your personal and financial circumstances, as lenders want to be confident you'll be able to afford the repayments. They'll take into account lots of things when considering your application, including your income and outgoings, your credit history and your deposit size.
What happens if my guarantor dies?
It's understandably not something you'll want to think about. But, if your mortgage guarantor dies, you must inform your lender who will review your mortgage. They may ask for a new guarantor, or make a claim against the estate's assets to secure the loan. However, if your financial circumstances have improved and you've built up enough equity in your home, they may instead allow you to remortgage without the need for a guarantor.
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YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
The FCA does not regulate mortgages on commercial or investment buy-to-let properties.
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