Do I need a Guarantor?

What is a guarantor mortgage or a parent guarantor?

A guarantor mortgage is an option when you may not have enough income to qualify for a mortgage on your own. Your guarantor provides a guarantee that they will repay the amount borrowed if you don’t make the agreed payments.

Do mortgage lenders still accept guarantors? Is it easier to get a mortgage if you have a guarantor?

Yes, there are lenders that would consider guarantors. I would suggest speaking to your mortgage advisor and they can look at your options if this is a route you’re interested in.

How does a guarantor mortgage work? What are the types of guarantor mortgage or mortgages?

There are a couple of types of guarantor mortgages. Firstly, you have a guarantor mortgage using the guarantor’s savings. Their money is deposited into a savings account and the guarantor can’t withdraw their funds until after a certain period, normally around five years. 

Another way a guarantor mortgage can work is by securing it on the guarantor’s property, which could allow a mortgage with no deposit from the borrower. The lender would secure a percentage of the purchase price of your new home against your helper’s property – normally around 20%. To qualify for this option, the guarantor would normally need to own 40% of their home.

Finally, there are Joint Borrower Sole Proprietor mortgages. There are a handful of lenders that can consider this type of scheme. Effectively, you use the helper or the guarantor’s income to reach affordability for the mortgage, but they won’t be on your mortgage deed.

I’ve recently used this type of mortgage with one of my clients. They were going through a divorce and wanted to keep the family home. They opted to add a sibling onto the mortgage to boost affordability.

Because the sibling wasn’t added onto the deeds, they avoided paying stamp duty. It’s quite a useful form of guarantor mortgage.

Will I be able to borrow more with a guarantor mortgage? How much of a mortgage can I get with a guarantor?

This ultimately depends on the application as a whole. Typically, you can borrow around 4.5 times your total income. However, guarantee mortgages can come with very specific criteria. 

If you’re interested in a Joint Borrower Sole Proprietor mortgage, you may be able to borrow more. This can depend on the guarantor’s age and the income you’re wanting to use. It’s best to speak to your mortgage advisor for guidance on the most suitable direction to follow.

Can you get a 100% mortgage with a guarantor?

100% mortgages are considered risky by lenders because you aren’t putting in a deposit. As a result, only a few providers would offer a 100% mortgage – and those that do often have very specific criteria in place. 

There may be lenders at the time of your application that could consider this. Again, it’s best to speak to your broker to go through the options at the time of application. Criteria changes very quickly at the moment, so it’s hard to give general advice [podcast recorded in September 2024].

Do guaranteed mortgages have higher interest rates?

Potentially you would have a higher interest rate, because you’ve got a smaller lender choice for this particular type of mortgage. 

Who is a guarantor mortgage suitable for? How do you qualify for a guarantor mortgage?

We understand that getting onto the property ladder can be hard, so it could work for anyone who’s struggling, but has family members who may be able to help. 

In terms of qualifying, each lender would have bespoke criteria which would need to be met.

What documents should I provide for a guarantor mortgage?

Typically it would be the same requirements as for a normal mortgage. We need your three months’ bank statements, three months pay slips and a copy of your ID. 

Additionally, the lender may require evidence from the guarantor that they either have equity in their home or proof of their savings. The guarantor would also need to receive independent legal advice, which needs to be shown to the lender before completion.

Who can guarantee a mortgage?

The guarantor must be a close family member or have a close long-term relationship with the borrower, must live in the UK, and have income paid in sterling into a UK bank account. 

What are the risks of a guarantor mortgage? Are there downsides for the guarantor?

There are some risks which go with a guarantor mortgage, and the guarantor must get independent legal advice before going ahead. That’s because they can only be released from their responsibility when the borrower is in a position to cover the entire mortgage, or if the loan is repaid in full.

If there are important changes for either the borrower or the guarantor, such as unemployment, you must notify the lender right away, as that will be a change to the basis of the loan.