Guarantor Mortgages

With a guarantor mortgage, you may be able to get a mortgage even if you have no deposit or a bad credit score. A mortgage guarantor is someone – usually a parent, a relative or even a close friend – who will cover your mortgage repayments if you can’t pay them for any reason.

How do guarantor mortgages work?

A guarantor mortgage uses someone else’s home as ‘security’ – the lender can forcibly sell this property if neither the guarantor nor the borrower can keep up with the borrower’s mortgage repayments. This reduces risk for the lender, as it ensures they won’t be out of pocket even if the monthly mortgage payments aren’t made.

  • The person who agrees to be a guarantor adds their name to the legal documents, agreeing to make repayments if the borrower can’t. They won’t actually be on the title deeds of the property, and they won’t own any share of it.
  • The guarantor usually has to use their own property as ‘security’ – so if neither the mortgage borrower nor the guarantor can make the repayments, then both their homes may be at risk.

Some guarantor mortgages use savings rather than property. This can work in a few ways, for example:

  • The guarantor puts cash into a special savings account to hold as security against the mortgage. If the mortgage misses too many payments and goes into default, then money is taken from there to pay it off. The savings account can still get some interest, and if there’s no need to use it to help deal with the mortgage, then it can work as a regular saving account.
  • The guarantor puts money into an account linked directly to the mortgage, making monthly repayments cheaper. However, there’s no interest paid, and the guarantor can usually only get their money back when the mortgage is paid, or almost fully paid off.

Who can be a guarantor?

People often ask parents or older relatives to be their guarantor, usually because they have good credit and a larger income, and because they have a strong bond with the borrower. Some lenders may even require your guarantor to be a family member.

Not anyone can be a mortgage guarantor. Some lenders insist that the mortgage guarantor must have fully paid off their own mortgage, while some will settle for a certain amount of equity in it, e.g. they’ve paid over 50% of the full amount. But they certainly must be a homeowner. If they are still paying off their mortgage, they need to show that they have a high enough income to cover your repayments as well as their own. If they’re retired and no longer pay a mortgage nor have a regular income, they may have to show that they have the funds in place to cover your payments if necessary. A guarantor must have a healthy credit report, to give the lender confidence in their ability to manage finances.

It’s important that anyone looking to be a guarantor does their own research and gets independent legal advice, as well as having all their documents in order before agreeing the deal.

Who can get a guarantor mortgage?

A guarantor mortgage may suit you if:

  • You’re struggling to save enough for a decent deposit
  • You have little or no credit history, for example if you’re new to the country
  • You have a poor credit score

It’s worth noting that guarantor mortgages can sometimes be available with no deposit required – this is called a 100% mortgage.

What are the potential risks involved in a guarantor mortgage?

Being a guarantor means you’re legally responsible for paying the mortgage if the borrower can’t. If you also can’t make the payments, you risk losing your own home and damaging your credit report. So, it’s important to take independent legal advice, speak to a mortgage adviser, and think it over carefully before making a commitment.

Do guarantors get credit checked?

Guarantors do have their credit checked, and most lenders will want to see a strong credit score, as they’ll be the ones responsible for making the repayments if the borrower can’t. If the guarantor’s credit score is strong, there’s more of a chance that the mortgage will be approved.

This kind of credit search is what’s known as a ‘soft credit check’ and it won’t affect the guarantor’s credit score. These searches aren’t visible to other companies looking at the file in the future.

What happens if a guarantor can’t pay?

This situation actually doesn’t tend to arise that often, and this is because lenders are really thorough when checking guarantor’s finances when the mortgage is applied for.

From time to time though, people’s financial situations can change, and if the guarantor can’t make the repayments, the lender will first look into why. The guarantor is breaking the agreement of the contract they will have signed, so there can be quite serious consequences if they don’t pay, and the lender will get in touch to discuss next steps.

Does having a guarantor help you get a bigger mortgage?

Having a guarantor can help you to get a larger mortgage, and this can be true in some situations even if you have a small deposit, or no deposit at all – as some guarantor mortgages allow you to borrow up to 100% of the property value. This is because the guarantor’s home or savings is the security against the loan.

Can I stop being a mortgage guarantor?

A guarantor won’t necessarily have to stay on the mortgage for the entire term – if the borrower’s own financial circumstances improve, or if they’ve paid off a certain amount of their mortgage, the lender may agree to change the terms of the mortgage.

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