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What is a Guarantor Mortgage?

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Here’s everything you need to know about guarantor mortgages, including who they’re for and how they work.

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What is a guarantor mortgage?

A guarantor is someone who agrees to put up something – normally property or cash –as security to back someone else’s mortgage. 

Having a guarantor can help a buyer with bad credit, a small deposit or low income gain access to a wider range of mortgage options.

In most cases a parent will act as a guarantor for their child. The child takes out the mortgage, but the parent gives a guarantee that they will step in and pay if the child falls behind on their payments. 

How does a guarantor mortgage work?

A guarantor mortgage gives mortgage lenders an extra level of assurance that a mortgage will be repaid. 

This means the lender might lend to an applicant it might otherwise turn down. Guarantor mortgages are suitable for people who have:

  • a small deposit
  • a low income in relation to the mortgage amount 
  • a poor credit score or little credit history

What are the different types of guarantor mortgage?

There are several types of guarantor mortgage. 

In most cases, the mortgage lender will place a charge against the guarantor’s property. To do this, the guarantor will need to have paid off their mortgage or have sufficient equity in their home. Having a charge on their property means the guarantor could lose their home in the event that the child’s mortgage is not paid as agreed.

With other guarantor mortgages, the guarantor will put down cash in a savings account linked to the borrower’s mortgage. This arrangement is often known as a ‘family offset mortgage’. The money will need be kept in the savings account until a certain proportion of the mortgage has been paid off, or until the amount owed on the mortgage falls below a certain proportion of the property’s value.

Parents can also help their child buy a home by buying a property jointly. This means the parent’s income, as well as the child’s, will be taken into account when calculating mortgage affordability. With a joint mortgage, both the parent and child’s names are on the mortgage and the property deeds.

A ‘joint borrower sole proprietor (JBSP)’ mortgage works slightly differently. Both the parent and child are named on the mortgage, but only the child’s name is on the property’s deeds. This means the parent can avoid the stamp duty surcharge payable on second homes. 

Who can be a guarantor?

To be a guarantor, the parent or family member usually needs to:

  • be a homeowner
  • have sufficient equity in their property
  • earn a decent income
  • have a good credit history

What happens if the borrower misses a repayment on a guarantor mortgage?

If the borrower misses a payment on a guarantor mortgage, the guarantor could be asked to pay instead. If the payments aren’t bought up to date by either party in sufficient time, the lender could ultimately repossess the guarantor’s home or take cash from the savings account linked to the mortgage.

For this reason, it’s important that anyone considering being a guarantor take independent legal advice before going ahead. Some lenders will insist on this. 

However, guarantor repossessions only happen in the worst case scenario and after all other options have been explored. It’s more likely that the lender will work with the borrower and guarantor to put a payment plan in place to ensure that payments are brought up to date. 

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Last Updated: October 27th, 2021