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Learn about guarantor mortgages

Guarantor mortgages

Find out more about guarantor mortgages and how they could help you get on the property ladder below.

What is a guarantor mortgage?

Guarantor mortgages are designed for people who might not be able to get a mortgage on their own. 

They can be a good option if you have little or no deposit, are on a low income or have a poor credit rating. Essentially the guarantor – usually a family member or friend who is also a homeowner – agrees to pay the mortgage if you cannot. 

They allow banks and building societies to lend to people they might not otherwise, as it allows them to spread the risk.

For the guarantor, these mortgages are a significant undertaking that makes them jointly responsible for the debt and puts their own home or savings at risk. That’s why potential guarantors should always seek advice from a legal professional.

How do guarantor mortgages work?

A mortgage with a guarantor allows you to borrow cash that you wouldn’t otherwise have been offered.

Having reputable borrowers (such as your parents) as mortgage guarantors reassures banks that they will get what they are owed, even if you default on your payments. This reduces their risk, allowing them to lend more widely.

Although the named borrower owns the property, the guarantor is legally responsible for the debt. They will need to offer their own home or savings as security to the mortgage lender to do this. That way, if both you and your guarantor fail to make the monthly payments, the bank can take whatever was offered as security. 

In extreme cases, the guarantor could therefore have his or her home repossessed. 

The person who acts as a guarantor will need legal advice as they will be putting their name on legal documents and risking their own assets.

However, if no repayments are missed, nothing will be required of them. It’s only if things go wrong that the lender will expect the guarantor to put things right.

Who might need a guarantor mortgage?

Guarantor mortgages can be useful if you have:

  • A low income. Providers usually decide how much to give you based on a multiple of your salary. If it’s low, you might find that the amount they’ll lend you isn’t enough to get the home you want. Having a guarantor may enable you to get a bigger loan.

  • Little or no deposit. Usually, you need a deposit of at least 5% to get on the property ladder, but the more you have, the better the deals on offer. With a guarantor mortgage, however, you might be able to get a 100% mortgage.

  • A bad credit score. Lenders want to be sure that you’ll pay them back on time, so a bad credit score means they might not lend you what you need, even if you can afford the repayments on paper. If they have doubts, having a guarantor on board can be the clincher.

  • Little or no credit history. Many of us shy away from credit cards and loans, but having no credit history means it’s hard for lenders to know if you’re a responsible borrower or not. If providers don’t have enough information to be 100% confident about granting the loan, a guarantor can help.

Guarantor mortgages are often used by first-time buyers, but they can also be used by borrowers who are:

  • Taking out a mortgage to move home

  • Remortgaging, provided past payment history shows a good payment record

  • Changing the terms, for example by buying a former spouse out of a joint mortgage

What documents should I provide for a guarantor mortgage?

If you're applying for a guarantor mortgage, you'll need to supply the usual documents you would when applying for a mortgage. These include:

  • Proof of income (payslips, for example)

  • Proof of ID (a passport, for example)

  • Proof of your outgoings/spending habits (normally bank statements dating back a few months)

  • Proof of address

If you're acting as the guarantor of the mortgage, you'll also need to provide certain documents as you're liable for the loan if the borrower defaults on payments.

As well as the above documentation, you'll likely need to show evidence of home ownership such as the property deeds.

How much more can you borrow with a guarantor mortgage?

Guarantor mortgages sometimes allow you to borrow 100% of the property value. However, typically, lenders will only offer up to four to four-and-a-half times your salary – although some may stretch to five times what you earn, especially if you have a guarantor in place.Even with a guarantor mortgage, you’ll have to pass the lender’s affordability checks, so the amount you can borrow will still depend on your income and how much you can repay each month.

Who can be a mortgage guarantor?

Who is eligible?

Parents are the most common form of mortgage guarantors. But guarantors are not limited to parents and could include other family members, such as grandparents or aunts and uncles.

And while banks and building societies usually expect a guarantor to be a close member of the borrower’s family, some may accept other people such as long-standing friends or godparents.

Requirements to be a guarantor

All guarantors must be homeowners in their own right. Some lenders expect them to have paid off their own mortgages in full, although other lenders are less strict about this.

Other requirements can include:

  • Having a certain amount of equity or savings

  • Earning a high income

  • Having an excellent credit record

  • Taking legal advice

Guarantor liability if you can’t pay your mortgage

A guarantor offers up assets as collateral against your mortgage loan. In most cases, these are either their savings or their own home. 

As they’re jointly liable for the debt, they face having these assets repossessed if you fail to meet your repayments. In extreme cases, both the borrower and the guarantor could lose their homes, but there are stages before that happens. 

However, if you fall behind on your mortgage repayments, you will often be offered more time to make up the shortfall in the first instance – although you might also be charged a late-payment fee. 

It’s when you keep missing payments, that things become more serious. If your guarantor put up savings as collateral, for example, they may be told that they can’t access the money for a longer period of time, or that those savings will be used to pay off your debt.

If things don’t improve, your house could then be repossessed and sold to pay off your debts. And if there’s still a shortfall because the sale doesn’t cover what you owe, the lender could repossess the guarantor’s home too.

That said, as long as you meet all your repayments on time, your guarantor won’t have to do anything, and all their collateral will be safe. 

Once you have repaid a chunk of the mortgage, you may also be able to remortgage to a standalone mortgage – especially if your income has risen in the meantime. 

Types of guarantor mortgages

Savings as security

The guarantor agrees to set aside money in a savings account chosen by the mortgage lender.

The savings may still earn interest but are there to be used as security in case the borrower misses a repayment.

Property as security

A charge is placed against the guarantor’s property, which acts as security against your loan.

In a worst-case scenario, the guarantor’s home could be sold to pay off any outstanding debts.

Types of guarantor mortgages

Savings as security

The guarantor agrees to set aside money in a savings account chosen by the mortgage lender.

The savings may still earn interest but are there to be used as security in case the borrower misses a repayment.

Property as security

A charge is placed against the guarantor’s property, which acts as security against your loan.

In a worst-case scenario, the guarantor’s home could be sold to pay off any outstanding debts.

Other mortgage options for low-income or deposit borrowers

Family deposit or offset mortgages

A family deposit mortgage is when a family member puts their savings into an account linked to your mortgage. The savings earn interest but normally have to remain in the account for a set amount of time.

The idea is the savings can be used as collateral if the borrower fails to make the repayments. So, your family member's finances are at risk if you can't afford the mortgage.

A family offset mortgage, sometimes called a ‘parent offset mortgage’, works similarly. It involves a family member paying money into a savings account that is linked to the borrower's mortgage.

However, the key difference is that they won't earn interest on the savings. Instead, the money is offset against the mortgage loan, reducing the interest owed, making the monthly repayments more affordable.

First-time buyer schemes

If you're applying for a mortgage as a first-time buyer, and struggling to save up enough of a deposit, there are some government schemes designed to help.

  • Lifetime ISA – you get a 25% bonus on savings if you use it for your first home or retirement

  • Shared ownership – lets you buy an equity share of a home and pay rent on the rest, meaning a smaller deposit and mortgage

  • First Homes – allows first-time buyers to purchase certain properties in England for 30-50% of their value, but eligibility criteria applies

Joint borrower, sole proprietor mortgages

Technically not a guarantor mortgage, this type of mortgage allows two people to buy a property together.

While both parties will go on the mortgage, only one name will go on the deeds, allowing the other person to avoid second home stamp duty (if he or she is already a homeowner).

Other mortgage options for low-income or deposit borrowers

Family deposit or offset mortgages

A family deposit mortgage is when a family member puts their savings into an account linked to your mortgage. The savings earn interest but normally have to remain in the account for a set amount of time.

The idea is the savings can be used as collateral if the borrower fails to make the repayments. So, your family member's finances are at risk if you can't afford the mortgage.

A family offset mortgage, sometimes called a ‘parent offset mortgage’, works similarly. It involves a family member paying money into a savings account that is linked to the borrower's mortgage.

However, the key difference is that they won't earn interest on the savings. Instead, the money is offset against the mortgage loan, reducing the interest owed, making the monthly repayments more affordable.

First-time buyer schemes

If you're applying for a mortgage as a first-time buyer, and struggling to save up enough of a deposit, there are some government schemes designed to help.

  • Lifetime ISA – you get a 25% bonus on savings if you use it for your first home or retirement

  • Shared ownership – lets you buy an equity share of a home and pay rent on the rest, meaning a smaller deposit and mortgage

  • First Homes – allows first-time buyers to purchase certain properties in England for 30-50% of their value, but eligibility criteria applies

Joint borrower, sole proprietor mortgages

Technically not a guarantor mortgage, this type of mortgage allows two people to buy a property together.

While both parties will go on the mortgage, only one name will go on the deeds, allowing the other person to avoid second home stamp duty (if he or she is already a homeowner).

A guarantor mortgage can help you get a property with a low income or deposit. However, you should look closely at your finances to ensure you can afford your repayments, or your guarantor will have to cover the shortfall.

Guarantor mortgage FAQs

Can I get a guarantor mortgage with bad credit?

Yes – guarantor mortgages are a good way of borrowing money to buy a home if you have a poor credit score. The risk for the provider is reduced because the guarantor is also liable for the debt.

Which companies offer guarantor mortgages?

Lots of mortgage lenders offer guarantor mortgages in 2022, but you might get a better rate if you use a specialist.

Does having a guarantor help you get a bigger mortgage?

Sometimes, a guarantor mortgage will allow you to buy without a deposit, meaning you can borrow 100% of the property value. You might also be able to borrow at the top end of your affordability – say closer to five times your salary.

What are the interest rates on guarantor mortgages?

The interest rate you are offered will depend on the loan to value (LTV) you need and how much you want to borrow.

So if you use a guarantor to get a 100% mortgage with no deposit, you’ll generally have to pay a higher interest rate. Shop around to find the best guarantor mortgage deal and make sure you can afford the monthly repayments even if interest rates rise.

Does the guarantor own a share of the property?

The guarantor is named on the mortgage documents, but not the property's title deeds. This means they are jointly liable for the debt, but have no entitlement to, or share in, the property itself.

What happens if my guarantor can't pay my mortgage either?

If both you and your guarantor become unable to make the repayments, the lender would likely try and find a solution to help you manage the debt. This could be extending the mortgage term to reduce the monthly repayments, or allowing the deal to be switch to interest-only for a period of time while one (or both) of you gets back on your feet.

However, as a last resort, the lender will seek repayment for the debt from the guarantor's savings/property. Your property may need to be sold to cover the debt.

If the guarantor has the means to repay the loan but is not willing to, then that is a breach of their contract with the lender and legal proceedings may therefore take place.

Are guarantor interest rates better than traditional mortgage interest rates?

No, usually guarantor rates are a bit higher than standard mortgages. This is to account for the additional risk the lender is taking, particularly if you're purchasing with a small or no deposit.

Can a retired parent be a guarantor?

Yes, retired parents can be guarantors. Provided they have a property or savings that the lender is happy to accept as collateral, then this should be an option.

However, lenders may be more wary of providing a mortgage to you with a retired guarantor, due to their income not being as reliable in the future. It's worth checking the terms and conditions for lenders before you apply to make sure that you and your guarantor would be eligible.

Do guarantors get credit checked?

Yes, the guarantor's credit history will normally be taken into account by the lender. However, they normally perform a 'soft credit search' to check your credit rating, which won't show up to other businesses and shouldn't affect your score.

However, if the borrower defaults on the loan and you become liable to repay the mortgage in their place, this will be added to your record. And if you can't pay the loan, this will affect your score.

What happens if my guarantor dies?

If your guarantor passes away during your mortgage term, there are a couple of things you could do.

You could get another guarantor, if there is another family member that is able to act as one for you. Alternatively, if you have built up enough equity in your home or your financial circumstances have improved, you may be able to remortgage to a standard deal.

About the author

Atousa Cunnell
Atousa is a Content Producer for money.co.uk, responsible for writing and editing a wide range of mortgage content that are helpful to the reader.

money.co.uk is not a mortgage intermediary and makes introductions to Mojo Mortgages to provide mortgage solutions.

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