Mortgage Guarantors

What is a Guarantor Mortgage?

With first-time buyers increasingly struggling to get on the housing ladder, would be buyers are turning to the bank of mum and dad to help give them a helping hand. Guarantor mortgages are a great idea if you have parents or a close family member that is willing to act as a guarantor for your mortgage and take responsibility for any repayments you may miss.

A guarantor mortgage can work in a number of ways, essentially it enables the borrower to take out a bigger mortgage. For example, a lender may be able to lend you £90,000, but the property you want may be £120,000, so you would need to have somebody act as a guarantor for the rest of the loan, which means them taking on any risk involved if you loose your job or can’t afford the mortgage.

Another method of using a guarantor is to get the mortgage in your name, but to then have your parents act as a guarantor for the whole amount of the mortgage, which means they could be liable for the complete mortgage payments.

Who Can Act as a Guarantor?

It will normally be your parents or another family member that will act as a guarantor, it is a big responsibility and not a lot of people will be volunteering to guarantee somebody else’s mortgage. It involves a large amount of trust because there is a realistic chance that they might find themselves paying the mortgage off themselves.

Just because your parents are older and more experienced, that does not necessarily mean that they will be accepted straight away to act as a guarantor. A lender will want to look at the financial stability of any guarantor and look at what their income is, how much they already have to pay back on their own mortgage, and for how much longer they are likely to remain in employment.

It is important that you treat a guarantor mortgage the same as you would any other type of mortgage. A lot of lenders offer guarantor mortgages and they can often have some good rates, many will welcome the fact that you have someone with some experience of paying back a mortgage behind you.

What a Guarantor Mortgage Can be Used For?

One of the most common uses of guarantor mortgages is for university students. Many parents find that it makes financial sense to buy a property for their child to live in, rather than throw money away in rent. It also lets the parents check up on the property and make sure their child isn’t living in the equivalent of a slum. A parent may put the property in the child’s name but pay the rent themselves, and use the rent from the other tenants to pay off the mortgage, they could then sell the house on once the child leaves university.

Exiting a Guarantor Mortgage

Just because your parent’s names are on the mortgage when you first take it out, don’t worry, this doesn’t mean that they have to be on their forever. Once you start to earn more money or you feel that you can manage the payments yourself you can wave goodbye to your parents and get their name taken off the mortgage. Your parents will no doubt also breathe a sigh of relief because they will no longer face paying your mortgage.

Guarantor mortgages are a great idea if you firstly have parents that have some spare money, and secondly if they trust you to pay back your mortgage. Depending on what type of guarantor mortgage you take out, in an ideal world your parents need not be liable for any of the mortgage payments, if you stick to your side of the deal and keep up with repayments. However, guarantors can play a vital part in the mortgage process should you loose your job and can’t make the repayments, and at the end of the day, who better to sympathise than your own parents.