What is a guarantor mortgage?

It can be difficult finding a mortgage with bad credit or no credit history. But with the help of a guarantor, you might have more success.

Here’s our guide to what you need to know about guarantor mortgages.

It can be difficult finding a mortgage with bad credit or no credit history. But with the help of a guarantor, you might have more success.

Here’s our guide to what you need to know about guarantor mortgages.

Mark Gordon
From the Mortgages team
5
minute read
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Posted 15 FEBRUARY 2021

What is a guarantor mortgage?

A guarantor mortgage is a type of mortgage where a family member or close friend agrees to cover the repayments if you’re unable to. Guarantor mortgages are often called ‘springboard’ or ‘family’ mortgages.

A guarantor must be a homeowner themselves and be prepared to put their own home at risk if the mortgage repayments aren’t met.

Although it’s a way for first-time buyers or people with a poor credit history to get on the property ladder, it’s a massive commitment for the guarantor. Both you and your guarantor need to be fully aware of the risks involved.

Your home may be repossessed if you don’t keep up repayments on your mortgage. Your guarantor will have to cover the repayments if you are unable to or they risk losing their own home.

Why might I need a guarantor mortgage?

A guarantor mortgage could be a way of getting a mortgage if you’re unable to save for the necessary deposit or you have a poor credit history.

A guarantor mortgage might be suitable if:

  • you have little or no deposit
  • you’re a first-time buyer
  • you have a low income
  • you have a poor credit history
  • you have little or no credit history
  • you want to buy a home that you otherwise wouldn’t be able to afford on your income

A few lenders offer 100% guarantor mortgages – this means you wouldn’t need a deposit. But it could mean that if house prices go down, you might be left with negative equity if you needed to sell.

Who can be a guarantor?

Most lenders will insist that your guarantor is a close member of your family – usually a parent.

A guarantor will need to:

  • own their home outright or have enough equity in it to satisfy the lender – for example, 50%.
  • have a good credit history and be able to show they’re financially reliable.
  • have a high enough income – if they’re still paying off their own mortgage, they need to show they’re able to cover your repayments as well as their own, if necessary.
  • have taken legal advice – lenders usually insist on this, so the guarantor understands the risks involved.

If your guarantor is retired, they may have to show they have enough funds, such as savings, to cover your repayments if needed.

Did you know?

Many lenders insist that a close family member, such as a parent or grandparent, be a guarantor. This is because they’re more likely to have a strong, personal bond with the borrower and a higher level of trust.  

How do UK guarantor mortgages work?

That depends on the type of guarantor mortgage you have.

Property as security
The guarantor puts their own home up as security against the mortgage loan. This means that if neither of you are able to make the repayments, your guarantor is also at risk of losing their home.

Savings as security
Your guarantor puts money into a special savings account, which is held by the lender for a set number of years as security. If you miss payments on your mortgage, the money in the account can be used to pay them. Your guarantor might be able to earn interest on the savings, so it could work like a regular savings account.

Another option is that your guarantor puts money into a savings account that’s directly linked to your mortgage. These savings can be offset against the mortgage to help make the monthly repayments cheaper. But your guarantor is unlikely to earn any interest and will usually only get their money back once the mortgage is paid, or almost paid, in full.

Read more about offset mortgages and how they work.

What happens if I miss a payment?

It depends on your lender. If you miss a payment your lender might:

  • give you more time to make the repayment
  • charge a missed payment fee
  • ask your guarantor to make the payment for you.

If you regularly fall behind on repayments, your lender could:

  • use money from your guarantor’s savings account if they’ve used this as security
  • hold onto the money in the savings account for a longer period
  • repossess and sell your home to get back what you owe them.

If your home is repossessed and sold for less than the amount owed on your mortgage, you or your guarantor might have to pay the difference. If your guarantor can’t pay, their own home could be repossessed.

Is my guarantor liable for the entire mortgage?

Not necessarily. In some cases, the guarantor can be responsible for just part of the mortgage.

For example:

  • You buy a house worth £200,000 and take out a 100% mortgage
  • You make your guarantor responsible for 25% of the mortgage
  • If you fail to make the repayments, your guarantor will only be liable for £50,000

Do they have to be a guarantor for the entire length of the mortgage?

Again, not necessarily. If your financial situation improves, for example, you get a promotion or a new job, you might be able to ask your lender to change the terms of your mortgage.

If you’ve paid off a fair amount of the mortgage and have built up enough equity, it might be worth remortgaging your home onto a deal that doesn’t need a guarantor.

What if my guarantor dies?

It depends on your lender. Some might want you to add a new guarantor to the mortgage, while others will let you use the guarantor’s estate to pay off some of the mortgage.

This is something you should ask your lender about. You should also check the terms and conditions of the mortgage before you apply.

How much does a guarantor mortgage cost?

The costs for taking out a guarantor mortgage will be more or less the same as a standard mortgage. You and your guarantor will need to consider:

  • the amount you want to borrow
  • how much, if any, deposit you’re putting down
  • the interest charged on the mortgage
  • typical mortgage fees and charges, arrangement fees, missed payment and early repayment fees
  • solicitor and valuation fees
  • stamp duty charges.

Am I eligible for a guarantor mortgage?

Eligibility criteria can vary between lenders, so it’s important to check their terms and conditions before you apply.

Some things to look out for:

  • age limit – some guarantor mortgages are only available for those aged 21 or over
  • where you live – some deals are only available for customers in England, Wales or Scotland
  • income – you might need to earn over a certain amount
  • some deals require a deposit
  • some deals are only offered to first-time buyers
  • most deals are only available for a property that will be your main residence, not one you want to rent out

All applications are subject to status and lending criteria and are based on your individual circumstances. Applicants must be 18+ and a UK resident.

Are there alternatives to a guarantor mortgage for first-time buyers?

There are other options for first-time buyers.

If your parents are helping you buy your first home, you might also want to consider:

A joint mortgage
Allows you and your parents to buy a property together. Both names will be on the mortgage and the property deeds. This way, your parents’ incomes will also be taken into account, so it could boost your chances of buying a property that you couldn’t afford otherwise.

Just be aware that your parents will be jointly responsible for paying the mortgage. And if they already own a home, they could be charged Stamp Duty for a second property, which could run into thousands.

A JBSP mortgage
A Joint Borrower Sole Proprietor (JBSP) mortgage lets you name your parents on the mortgage, but only your name will be on the property deeds. This means that your parents won’t have to pay a second Stamp Duty charge. However, most JBSP mortgages need a deposit.

Find out about more ways that parents can help their child buy a house.

Is a guarantor mortgage right for me?

A guarantor mortgage is a massive commitment and a huge financial responsibility for both parties. You need to think carefully about the risks before deciding to apply.

After all, it’s not just your home but also your guarantor’s that could be put at risk. You’ll also want to consider if potential issues could sour a close relationship with the people you love.

If you’re struggling to find a mortgage because you have bad credit, building your credit score could help to improve your chances of getting a mainstream mortgage.

And if you’re a first-time buyer, you might be able to benefit from the government’s Help to Buy: Equity Loan scheme.

Looking for mortgage advice?

We’ve partnered with London & Country Mortgages Ltd (L&C)** to provide you with fee-free mortgage advice. If you want expert help in understanding your mortgage options, get in touch with one of their friendly advisers here:

Go to L&C Mortgages

About London & Country Mortgages Ltd (L&C) 
**London & Country Mortgages Ltd (L&C) are a multi-award winning mortgage broker with over 20 years’ experience in helping people secure their perfect mortgage. Advice is provided by L&C, who are authorised and regulated by the Financial Conduct Authority (143002). 
L&C are not part of Compare the Market Limited. Compare the Market receives a % of the commission that our partner London & Country earns. All applications are subject to lending and eligibility criteria. 

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