If you’re unsure of which mortgage option to go with or are struggling to afford a deposit for a normal mortgage, a Guarantor Mortgage may be the perfect solution for you.
In this article we explain what a Guarantor Mortgage is, who it’s suitable for, the pros and cons of this type of mortgage, information about deposits and the application process. We also speak to Independent Mortgage & Equity Release Adviser Jane King to discover some of her best tips and insights surrounding this type of mortgage.
A Guarantor Mortgage is a type of home loan which relies on a financial guarantor to take on the responsibility of keeping up with your mortgage repayments if you’re unable to. This is typically a close family member, parent or friend.
Guarantor mortgages are also often referred to as Family Assisted Mortgages or Springboard Mortgages.
This type of mortgage is ideal for First Time Buyers and those who are struggling to afford a deposit due to their current circumstances. For instance, a previous homeowner who has recently divorced and now wishes to buy alone.
Guarantor Mortgages can also be beneficial to those with bad credit scores or poor credit histories, as having a guarantor can often make lenders more likely to offer you a mortgage.
Most lenders require your mortgage guarantor to be a close family member, this is often a parent or grandparent. Typically, a guarantor will need to meet the following criteria:
This type of mortgage requires someone you know well to be named as a financial guarantor on the title deeds. They will need to enter into a contract that states that they will be responsible for your repayments if you fall behind on them.
As security, your guarantor will be required to provide either of the following to the lender:
If you keep up with all of your mortgage repayments, the property or savings that your guarantor provided to the lender will not be touched. However, if you do fall behind on the repayments, then these assets will serve as collateral.
Guarantor Mortgages can provide a wide range of benefits that you would otherwise not experience. For instance:
As well as benefits, there are a number of potential drawbacks associated with guarantor mortgages. These include:
To find out more about Guarantor mortgages, we spoke to Jane King, who has over 15 years’ experience providing individuals with mortgage advice.
“Guarantor mortgages with the original meaning do not really exist anymore and you will only really find these types of schemes with the odd small building society such as the Harpenden, Beverley and Buckinghamshire Building Societies. They were phased out by larger lenders some years ago and replaced with two different types of scheme.
“One of these schemes is called “joint borrower, sole proprietor” where a lender agrees to accept the disposable income of a close member of the family as part of their affordability calculations so that a larger mortgage can be required. The person providing the income is noted on the mortgage but is noted on the deeds to the property. The other is where a close family member can deposit funds into a savings account with the lender who will then lend money to the borrower if they have no deposit.
“The first scheme is the closest to the old guarantor scheme and is offered by lenders such as Metro Bank, The Skipton and Principality Building Society and Barclays.
“The second is offered by lenders such as Halifax, the Post Office and Barclays.”
“If a lender offers a joint borrower, sole proprietor mortgage then you would apply in exactly the same way as the normal mortgage.”
“The same as per a normal mortgage in line with their lending policy which differs from lender to lender. With the second type of mortgage, your family will usually need to be able to lodge a minimum 10% deposit with the lender.”
As with any big financial decision, it’s important to seek as much advice as possible before going ahead. Mortgage expert Jane King recommends that you seek independent advice as they will be able to access all lenders and compare policy and rates to ensure you get the best mortgage for you.
We hope this article has been useful in providing you with everything you need to know about Guarantor Mortgages. Whichever path you choose to go down, we wish you the very best of luck.