Guarantor mortgages explained


Guarantor mortgages explained

With many first-time buyers struggling to get a foot on the property ladder, it’s understandable that parents and family members want to help their loved ones make that first step. A guarantor mortgage offers this in exchange for handing over a large chunk of the responsibility to the guarantor, rather than the borrower.

They’re becoming less and less common however, as lenders look towards other alternatives, but there are still a handful of guarantor mortgages on the market – mainly offered by building societies.

When might you consider a guarantor mortgage?

In most cases, guarantor mortgages are taken out by the parent or close family member of a first or second-time buyer. Sometimes, even if a buyer has saved for a deposit, they may not meet a specific lender’s criteria. Having a patchy credit history or being self-employed, for example, could cause issues when making an application for a standard mortgage – and that’s where a guarantor mortgage might offer a solution.

Even if you’ve not had any problems using credit, you may have had limited experience of dealing with credit in the past, which can work against you in a similar way. Effectively, a guarantor mortgage allows you to use the guarantor’s credit history and eligibility to borrow more at a better interest rate than if you applied for a standard mortgage on your own.

Although the majority of guarantor mortgage deals do require you to have saved a deposit, there are a handful that offer mortgages of 100% of the property’s value. This means guarantor mortgages could be suitable for those who have struggled to gather together a deposit too – but this does come with its own risks.   


How do they work?

When you sign for a guarantor mortgage, the guarantor – typically a parent or close family member – agrees to take on responsibility of the mortgage repayments if the person borrowing cannot repay. This means that if the borrower falls behind on repayments, the family member down as guarantor will have to find a way to cover the costs.

Usually, the guarantor will be tied into the contract until their family member has repaid enough of the mortgage so that the loan-to-value is at a level that the lender agrees with – in most cases this is lower than 80%. At this stage, or when the mortgage provider agrees that the borrower is in a suitable position to cover the repayments on their own, the guarantor can be taken off of the agreement.

In the past, it was more common that the guarantor would be held responsible for repaying the entire mortgage should the borrower fall behind. However, now many mortgage providers set a limit on the amount the guarantor can be held liable for.

On the other hand, it is often the case that the mortgage is secured against the guarantor’s home as collateral. This is really important as the guarantor risks losing their home if their family member falls behind on their repayments.

Things to watch out for

One of the most important things to remember is that guarantor mortgages can be risky. If the borrower struggles to repay at any point, the responsibility falls to the guarantor, and this could result in them having to fork out thousands of pounds or, in a worst case scenario, losing their home. This is why it is vital to only agree to a guarantor mortgage if you are confident the borrower will be able to repay each and every month. And, having a cushion of savings set aside in case their circumstances change is a wise move. 

If you are considering this route, each lender may have their own specific requirements as to what a guarantor has to be. For example, some may strictly state that a guarantor must be a blood relative, where others may allow spouses or partners. If in doubt, check with the lender.

Also, bear in mind that as there are only a handful of lenders that offer guarantor mortgages, it may be difficult to find a deal with the best rates. These days, there are other alternatives offered by banks and building societies that may be more appropriate for you.