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Are you wanting to buy a home but can’t quite borrow enough on a mortgage to afford it? You might benefit from a guarantor mortgage.
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What is a guarantor?
What are guarantor mortgages?
There are two main types of guarantor mortgage: one involves the guarantor going on the mortgage with you to help you borrow more, and the other involves them helping with a deposit.
Income boost
If you can’t borrow enough to get the mortgage you need on your own, you could benefit from having a guarantor.
This is usually a parent or other close relative who goes on the mortgage with you. However, they don’t go on the title deeds of the property you’re buying, and they don’t need to put up any assets as security.
Instead, they undergo an affordability check to make sure they can afford to support your borrowing in addition to their other expenses. After all, they are responsible for making the payments if you can’t.
Deposit boost
This involves your guarantor giving your lender an asset as security, to use as a kind of deposit. This can be cash, that’s locked away in a savings account for a few years, or a legal charge over their property.
In these cases, you’re usually able to afford the mortgage on your own but perhaps don’t have a deposit without your guarantor’s help.
Who can be a guarantor?
Not many lenders offer guarantor mortgages anymore. Those that do usually insist on the guarantor being a parent/guardian or grandparent. Some, however, can accept other relatives or even friends.
Anybody being a guarantor will need to pay for independent legal advice.
What is the main benefit of a guarantor mortgage?
A guarantor mortgage can improve affordability. In other words, you might be able to borrow more. This is because the guarantor’s income and expenditure is taken into account alongside yours.
If your guarantor is providing a deposit, it lets you get on the property ladder without needing to save a big chunk of money up yourself, which can be difficult.
First time buyers can still get the Stamp Duty exemption even with a guarantor. That’s because the guarantor’s name won’t be on the property deeds. And if the guarantor already owns a home, there won’t be extra Stamp Duty because they’re not officially buying the new one.
What is the main disadvantage of a guarantor mortgage?
If the guarantor is going on the mortgage with you, the lender may cap how long you can borrow the money for based on the eldest person’s age. If the guarantor is older than you, this could result in a shorter mortgage term, and therefore higher monthly payments, than you were anticipating.
Why The Mortgage Store Chorley?
Exclusive rates you won’t get directly from lenders
A dedicated point of contact from initial enquiry right through to completion and beyond
Appointments seven days a week, to best suit your schedule
Ongoing rate monitoring until completion as standard
Unsure if you can get a mortgage?
Contact us now for a no-obligation chat.
I have a mortgage already – can I be a guarantor?
Yes, you can. However, the new lender will check your disposable income after any existing mortgage payments and property running costs to make sure you can afford the payments you’re looking to guarantee, just in case you’re called upon to pay them.
If you’re looking to put up your property as security, you’ll need enough equity in it. Any existing mortgages on it will be factored in. Usually you need to own at least 40% of your home outright.
Please note that becoming a guarantor can impact your own affordability, should you be looking to refinance. Your credit rating could also be affected if mortgage payments are late or missed.
Will my credit score be affected if I become a guarantor?
Simply being a guarantor shouldn’t impact your credit rating.
If you’re going on the mortgage with another borrower, the mortgage account will show on your credit file. Opening a new account can cause a temporary dip to your credit score, but over time this should correct itself.
If the person you are being a guarantor for starts missing payments, your credit rating could be affected.
Can retired parents be guarantors?
Yes. If they are going on the mortgage they will need sufficient disposable income, when assessed by the lender, to cover the monthly mortgage payments should you be unable to pay.
Their age may be prohibitive with some lenders, so your options could be limited.
They should be able to provide a deposit for you, as long as their property is not subject to any restrictions saying they are unable to do that.
How much does a guarantor need to earn to go on the mortgage with me?
There’s no set amount. Lenders will assess their income and expenditure just as they will yours. They need to see enough disposable income from your guarantor to comfortably cover the mortgage payments if you can’t pay.
Do you have a question?
Can I get a guarantor mortgage with no income of my own?
That would be difficult. How can you afford the payments with no income? You can’t rely exclusively on your guarantor for that.
Using a guarantor is supposed to be a short-term measure, designed to boost your affordability until you can afford the mortgage on your own, usually through career progression. If you aren’t working, lenders could find it tough to see how you intend to support yourself in the future.
Can I get a guarantor mortgage with bad credit?
Potentially, yes.
You don’t necessarily need a guarantor to get a mortgage with bad credit, though.
Whether or not you can get a mortgage depends on what the bad credit is, and when it happened. The older it is, the less likely it is to matter.
Can I use a guarantor mortgage with a special purchasing scheme?
No. Special schemes like Shared Ownership need all the borrowers to be on the title deeds too.
If your guarantor is putting cash into a savings account, or consenting to a legal charge on their property, these are special mortgages in themselves, so can’t be used alongside another scheme.
Can I get a guarantor mortgage without a deposit?
The smallest deposit needed for a traditional guarantor mortgage, where somebody goes on the application with you, is 5%. More might be needed depending on your circumstances.
However, if your guarantor is offering up an asset, instead of going on the mortgage, technically you don’t need a deposit at all: the lender could let you borrow 100% of the purchase price.
Usually any savings put forward as security need to be between ten and 20% of the purchase price, with a legal charge also equalling around 20%.
How can The Mortgage Store Chorley help with guarantor mortgages?
Thinking about getting a guarantor mortgage to buy your own home? It can seem tricky, but with our help, it’s easy. We know all about guarantor mortgages and can find you the best deals from lenders who understand them well. Let’s make your homeownership dreams come true – talk to us today!
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
