If so, a guarantor mortgage might be the right mortgage for you. This guide explains what they are and how to get one.
A guarantor is someone who is willing to guarantee your mortgage payments. This could be a parent, a close relative or even a long-standing friend.
Your guarantor doesn't have to part with any money unless you fail to make your repayments. If this happens, they are liable to cover the repayments for you.
If your lender uses income multiples to work out borrowing limits, you can also benefit from your guarantor's borrowing power. By combining your income with your guarantor’s income, you can increase the size of mortgage available to you.
So, with a little boost from your guarantor, you should finally be able to get on the property ladder.
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Securing a mortgage these days is harder than it used to be, especially for first-time buyers. Many circumstances have made it more and more difficult to get on the property ladder:
One way around these problems has always been to borrow a sum of money from a family member to use as a deposit. A guarantor mortgage, however, means you don't have to do that. Lenders can offer more money towards your mortgage because they have combined incomes supporting the loan. Using a guarantor, you can secure a larger mortgage and buy your new home sooner.
Yes. If you default on your repayments, your guarantor is then responsible for repaying the mortgage. Therefore, your guarantor is at financial risk and could even lose their home if you can’t make your repayments. This is especially true in most cases where the guarantor is liable for the entire mortgage (although some lenders only require the guarantor to cover the shortfall between the property’s value and the mortgage amount).
In order to avoid these risks, make sure you are confident that you can afford your monthly repayments. If you want a guarantor for a mortgage, make sure your guarantor understands all the risks and suggest that they seek legal advice before agreeing. You can draw up a contract to determine your plan of action in case you can’t meet your repayments. Remember that you are in a financial agreement with someone close to you, so avoid any potential emotional strain on your relationship by planning ahead.
Firstly, it can help parents who would like to help their children buy a property but don't have a lump sum of cash to provide as deposit. Some parents may have just finished paying off university costs or spent money on their child’s wedding; added to that, increasing house prices mean ever higher deposits are required. Instead of paying out a large lump sum of cash, parents can be a guarantor and save their money while helping their children get on the property ladder.
Secondly, acting as guarantor avoids certain tax liabilities compared to joint ownership. A guarantor's contribution is on paper only, so it can't attract Capital Gains Tax nor will it count as an asset for the purposes of Inheritance Tax.
Yes. Most lenders require a guarantor to be no more than 60 years old at the time of the guarantor mortgage application. This age limit can be waived, but most lenders require it in order to avoid any changes in the guarantor’s income level. As guarantors reach the end of their careers or plan for early retirement, the lenders worry about affordability since the guarantor’s income has to be able to cover the entire loan.
Guarantors are also put through the same financial assessments as the person taking out the loan. Therefore, a guarantor’s income (minus any of their own financial commitments) must be able to cover the entire mortgage. However, the guarantor’s income figure can include pensions and investments.
If you are deciding whether to be a guarantor, make sure to think ahead. If you plan to buy another property in the near future, remember you are a guarantor and are responsible for someone’s mortgage. Lenders might see you as over-committed financially if you try to take out another mortgage at the same time as being a guarantor.
Lenders look for buyers who have a structured career plan ahead of them. In order to remove your guarantor, you need an increase in income. If lenders can’t see the likelihood of you taking more control over your mortgage in the next few years, they are less likely to give you a mortgage with a guarantor.
Guarantor mortgages are ideal for buyers who can almost afford a deposit but don’t want to wait any longer before buying a house. You should be able to make your monthly repayments and plan ahead for taking sole responsibility of your mortgage in the future.
Ready for more information on specific mortgage deals are available to you and your guarantor?
To apply for a guarantor mortgage we would suggest going through an impartial mortgage advisor. This will enable you to not only compare the range of available deals but also to understand the complexities of each different lender's conditions: how much they will lend, what they require of your guarantor and what kind of properties they will consider lending on.
The next step: fill in the mortgage advice enquiry form to receive a free call back from an FSA-authorised mortgage adviser. Your selected adviser will contact you to answer all your questions, give you advice on a guarantor mortgage, and get you on your way to buying your house.
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