Do I need a Guarantor?
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Do I need a Guarantor?
Charles Breen talks us through how a guarantor mortgage works.
What is a guarantor mortgage, what is a parent guarantor and are mortgage lenders still accepting guarantors?
A guarantor mortgage is for customers who don’t have enough income to qualify for a mortgage by themselves. Usually a parent, a relative or even a close friend will cover the mortgage repayments.
Lenders don’t really do these mortgages anymore. They pretty much only do Joint Borrower Sole Proprietor mortgages – which are basically the same thing. It’s a different name for the same vehicle.
How does a guarantor mortgage work? What are the types of guarantor mortgage?
What we’d call a guarantor mortgage in layman’s terms is technically called Joint Borrower Sole Proprietor in the industry. But your average Joe Bloggs would call it a guarantor mortgage.
You take out a mortgage and it is backed up by a parent or another relative. They guarantee that you will make the payments on the mortgage. If you’re unable to make the payments, they would step in and cover them.
Your relative’s income also helps with affordability – so they will be on the mortgage but they won’t be on the deeds of the property. That’s why it’s called Joint Borrower Sole Proprietor – because there are two people borrowing and one person living in the property.
Who is a guarantor mortgage suitable for? How do you qualify for one?
It is suitable for anyone and is tailored towards people whose income is not sufficient enough to get the mortgage they want. It’s usually used to boost their affordability.
So rather than a single person wanting to buy on their own, their mum and dad’s income could possibly top up the affordability to get them on the property ladder.
In terms of how you qualify, it’s the same as any mortgage. It would be based on your income, your credit history and your age. Lots of factors go into it, but it is the same as a standard mortgage.
Will I be able to borrow more with a guarantor mortgage? How much can I borrow with a guarantor?
You will be able to borrow more because it’s not just based on your income. Let’s say you’re earning £18,000 – that would limit what you could borrow. If you add in a parent’s income or a sibling or relative’s income on top – say £40,000 – you’ll be able to borrow a greater sum.
Two incomes are used for affordability purposes. So the amount you can borrow depends on your income and age. That will dictate how much you can borrow with any mortgage and it’s the same with a guarantor product.
Can you get a 100% mortgage with a guarantor?
I wish! No, you still need to put down some deposit and 5% is usually the minimum. If you can put down more, you’re obviously in a better position as always, but lenders won’t allow you to do a 0% deposit mortgage. They will allow you to be gifted money to use towards the deposit, though.
Do guarantor mortgages have higher interest rates?
Yes, because they are bespoke products. They’re more quirky. You’re having to go to smaller building societies – it won’t be NatWest or Halifax for this. Having said that, over the last few months more lenders are moving into this space. Some mainstream lenders are beginning to offer them, which means you could get more competitive rates [podcast recorded in February 2024].
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What documents should I provide for a guarantor mortgage?
It’s the same as with any mortgage. You will need three months’ bank statements and three months payslips. If you’re self-employed you need an SA302 tax document. You will also both need photo ID. All parties who are going to be on the mortgage need to provide those documents.
We always ask for a credit report from clients as well. It just gives us a very accurate snapshot of exactly what the lender is seeing.
Who can guarantee a mortgage?
Typically it’s a family member – mum, dad, brothers and sisters. There may be a lender that accepts aunts and uncles but that is as far out as it would probably go. It wouldn’t be your third cousin twice removed or a friend. It has to be a relative with pretty much every lender.
What are the pros and cons of a guarantor mortgage? What are the risks or downsides of being a guarantor on a mortgage?
The big pro is that you’re able to borrow more as an applicant and get on the property ladder. If you only have a small deposit you can still get a house you want without relying on a gift from family or friends. You won’t be stuck in rented accommodation for longer.
One downside is that you’re limited to age. If your parents are 55, for example, the lender may shorten the mortgage term because they base it on the eldest applicant. If your parents are in their 60s it makes it harder again – there’s limited working time left before they’re drawing down their pension.
You also need to consider that if you’re unable to make the payments, your joint borrower will have to step in. If the payments are missed it can affect their credit rating because they are on the mortgage with you. So in getting the mortgage, you’re both agreeing that that those payments are going to be made every month
How much does a guarantor need to earn for a mortgage?
It very much depends on how much you need to top you up. If you only need an extra £20,000, they wouldn’t have to earn very much to increase your boring capacity. But if you need an additional £150,000, they’ll need to earn considerably more.
It is all down to your earnings and borrowing capacity. That’s why you need to go to a mortgage advisor who specialises in this field. We will give you specific advice and use all of the tools and specialist software we have. We put all of those details into the affordability calculators to tell you with accuracy whether your guarantor and income will be enough to achieve your goals.
What happens if my guarantor is unable to make repayments too?
Ultimately the lender can take your house from you if no one’s able to make mortgage payments. It’ll negatively affect both your credit situations. All guarantors have to get independent advice before signing, for that reason.
Lenders do try to be very accommodating and give everyone a chance. If you engage with them as soon as you can, they will help you. It’s if you bury your head in the sand that issues occur.
Can I get a guarantor mortgage for a Buy to let property?
As far as I’m aware, no. I’ve never been asked that question before. But most of the time, affordability for a Buy to Let mortgage is calculated based on the rental income. So you wouldn’t need a guarantor. The rental income needs to stack up and ‘wash its own face’ for you to be able to purchase a property.
With some Buy to Let lenders there is a minimum income for a mortgage – but the advantage of going to a broker is that they will tell you who is going to lend based on the income you currently have.
Can a parent be a guarantor if they are retired?
Yes, they can. It’s quite common. They’ll use their pension income for the affordability assessment – they might already be receiving it or they will when they retire. It will shorten the term that you can apply for, restricting the length of the mortgage, but yes, retired parents can come onto your mortgage.
What happens if my guarantor dies?
We always recommend having life insurance for all parties, so that if one person passes away, what they’re expected to cover on the mortgage will be paid by the insurance.
Otherwise, when it’s time to remortgage, you may not be able to afford that property under your own steam. You would either need to sell or get another guarantor. It could put you in a very sticky position. Adequate life insurance will cover that possibility, if it sadly were to happen.
Do guarantors get credit checked? Can I get a guarantor mortgage with bad credit?
Yes, everyone is credit checked. It’s just to see how you’ve dealt with credit previously. You’re entering into a financial agreement with the lender and they are giving you a lot of money.
They’re going to do a credit check which could affect your mortgage, depending on how severe the credit is. If it’s a default or missed payment on a mobile phone or your broadband, usually it’s fine.
You would often be able to get a guarantor mortgage with poor credit, it just means you would have to be more selective in the lender you’re approaching.
Can I stop being a mortgage guarantor?
It would be down to the other person being able to afford a mortgage on their own. Let’s say you’re a guarantor to your son. Their partner moves in and wants to go on the mortgage and it’s affordable between the two of them. They could just remortgage and you would be taken off.
Or, if your son or daughter decides to sell the property, it’s no longer your joint liability because the mortgage gets paid back. You are no longer the guarantor. A guarantor can’t really stop midway unless it’s via remortgaging or selling the property.
How do I get a guarantor mortgage? How can a mortgage broker help?
You could go to every building society you can find to ask about a guarantor mortgage, or you can come to a broker who specialises in the area and knows exactly which lenders to approach.
We will talk to them on your behalf and get your Decision in Principle to give you that certainty. We will talk you through all the pros and cons with you and get you the mortgage you want.
More importantly, before the application we will make sure everything is correct and likely to go ahead. That’s the advantage of using an advisor. With something to bespoke and complicated, I definitely recommend using a mortgage broker. We’re the experts in the field and you’ll want that support – especially with several parties involved.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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