Do I Need A Guarantor?
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Do I Need A Guarantor? (Part 1)
Michael Tilston explains all about guarantor mortgages and how they work. Episode one of two, recorded in June 2024.
What is a guarantor mortgage? What is a parent guarantor?
A ‘guarantor mortgage’ is an older term that’s not commonly used in the current market. This type of mortgage is now usually referred to as Joint Borrower Sole Proprietor.
A guarantor is someone who supports their son or daughter or another family member to buy a house because their income is not enough or, in yesteryear, their credit wasn’t good enough. In the old days, a parent or a close family member could go on the mortgage with them to guarantee it would be repaid.
It effectively gives the lender added security that someone is there to pay the mortgage if there is a problem in the future.
Do mortgage lenders still accept guarantors? Is it easier to get a mortgage if you have a guarantor?
It’s not necessarily easier. Fewer lenders allow guarantors or joint borrowers.
The whole approach changed a lot because of stamp duty rules. It used to be quite straightforward to have another party on the mortgage, and it wouldn’t really affect the cost of buying a property.
Nowadays, the joint borrower or guarantor is not actually named on the property deeds, which gets around the issue of additional stamp duty costs.
We’ve got a panel of lenders, and maybe a dozen will do Joint Borrower Sole Proprietor. So in that sense, it’s actually easier to get a mortgage in your own name, if of course your income is enough and you have a deposit. But if you do need that income boost, then the Joint Borrower approach could be what you need to buy a home.
What are the types of guarantor mortgages?
The products are similar, most of the time. They don’t penalise you for doing a Joint Borrower Sole Proprietor mortgage – that would be deemed unfair, so they will give you the normal product list.
It just means the lender could go after your guarantor if for any reason the mortgage isn’t paid. That could then affect their credit file.
The types of guarantor mortgage are pretty straightforward – you could choose from fixed or variable, as usual. Most people prefer fixed. You might go for a five-year fixed rate mortgage, with the aim that in five years the main borrower could hopefully afford the mortgage on their own.
Will I be able to borrow more with a guarantor mortgage? How much of a mortgage can I get with a guarantor?
That’s where I will always encourage someone to to get in touch because it is really down to each person and their joint borrower/guarantor’s circumstances – including their age and income.
In theory, you’ll be able to borrow more with a guarantor, but some lenders limit the age of the eldest borrower. So someone aged 30 looking for a mortgage could have a 40 year term if they wanted to. But if their joint borrower/guarantor is 60, you might find you can’t have a term that long – because the eldest borrower is going to be turning 100 by the time the mortgage comes to a close.
So whilst you might be able to borrow more, it might end up being more expensive because you have to take the mortgage over a shorter term. But every lender is different – so get in touch and we could look at the details based on your specific situation.
Can you get a 100% mortgage with a guarantor?
The only option that comes to mind is if a family member will put up an equity stake in their property, in which case you don’t have to put down a deposit. It’s similar, because they are guaranteeing the mortgage with the equity in their property.
A couple of lenders will allow that. That’s the closest to a 100% guarantor mortgage.
Do guarantor mortgages have higher interest rates?
No, it’s broadly in line with the market, unless it’s extremely specialist. You might find some lenders add 0.1% or 0.2% onto the mortgage rate, but generally they are in line with other products.
Who is a guarantor mortgage suitable for? How do you qualify for a guarantor mortgage?
It’s open to anyone as long as you’ve got a family member or friend who’s happy to back you for however many years it takes.
Often these mortgages are taken out by young professionals in the early stages of their career – people in law or medicine, who know their pay will rise quite quickly. Their salary might double within five years, so they’re quite comfortable that they will soon be able to afford it on their own, without the guarantor.
To qualify, it’s very similar to a normal mortgage. It’s about earning enough to afford it over the overall term, and whether your monthly payments are manageable. Those assessments and credit scoring are the same for the main borrower and also the guarantor.
Both credit scores will be fully checked and the guarantor will not go on the property deeds.
What documents should I provide for a guarantor mortgage?
We need to know about your income, expenditure, credit score and any mortgages in the background – because of course, guarantors often own their own house.
That’s why it’s become more popular, because by not going on the deeds, the guarantor won’t attract additional stamp duty costs.
The documents are much the same as for a normal mortgage. If you’re employed, we need three months pay slips, three months bank statements, proof of ID and proof of deposit.
Who can guarantee a mortgage?
Most lenders prefer it to be an immediate family member. For obvious reasons, they believe there’s a lower risk of someone walking away from a close family member.
But some will allow aunts, uncles and with one or two lenders, friends could guarantee a mortgage if the income is there. Siblings could also do this for each other.
It’s quite broad – it just depends which lender we’re going to, and of course we tailor our advice for whoever comes through the door.
What are the risks of a guarantor mortgage? What are the downsides of being a guarantor on a mortgage?
The pros are that you could borrow more, depending on the overall term. But the age of the guarantor may affect the term – so while you could borrow more, you might have to have it over a shorter term. A lot of people might think that’s crazy, but it’s just the way that lenders like to work.
Their concern is that the younger party may not earn enough within 10 years to take the mortgage over, and are concerned about something happening to the guarantor. Lenders could no longer insist upon people having life insurance for a mortgage, so they limit the term instead.
Another downside is that the guarantor themselves will have that mortgage on their credit file. If they subsequently go to borrow money, that mortgage will be 100% against their income and could reduce affordability.
That is a big downside for guarantors and something to keep in mind. Circumstances do change, and what might be fine in 2024 might be a hindrance in 2027 if they have new plans in life.
Also, there aren’t as many lenders in the joint borrower/guarantor space, which may limit your choice.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
Speak To an Expert
Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
Do I Need A Guarantor? (Part 2)
We continue the conversation on guarantor mortgages with Michael Tilston. Episode two of two, recorded in June 2024.
How much does a guarantor need to earn for a mortgage?
That’s down to the lender. Each lender has different criteria when it comes to being a joint borrower or guarantor. They might insist upon the main borrower earning, perhaps £25,000 a year, and the guarantor might need to be on at least £40,000 a year.
But it is literally different with each and every lender. We’d need to know more about your circumstances, deposit level and everything else to be able to advise on the most suitable lender for you.
What happens if my guarantor is unable to make repayments too?
The lender may chase both parties. I’m saying both, but it technically could be three or four people on a Joint Borrower, Sole Proprietor mortgage.
You could, in theory, have mum, dad and a young couple. The lender would chase every single borrower on that mortgage. Non payment will affect everyone’s credit score.
Can I get a guarantor mortgage for a Buy to Let property?
There might be the odd lender that would do it, but it’s not common. Buy to Let mortgages are based on the rental value of a property so there’s less need.
The borrowing is calculated on how much the property is going to rent out for. Most people would normally only be looking for a guarantor mortgage to boost their income to buy a home to live in. In well over a decade of doing this, I’ve never been asked for a guarantor mortgage on a Buy to Let.
Can a parent be a guarantor if they are retired?
They could indeed. As long as their income is enough, it doesn’t matter if they’re still working, self-employed or retired. They might have a good pension income, or receive a passive income owning other properties or an investment portfolio. That income could still count towards that higher level of borrowing.
What happens if my guarantor dies?
Obviously that would be a very sad situation. And it could, of course, leave the main borrower in trouble if they really needed that income.
Something we take very seriously is making sure that people understand the risks when it comes to any mortgage. Everyone should have some form of life insurance, especially if they are borrowing with another party – as you’re responsible for each other.
It’s exactly the same with the guarantor. They generally are older and so we would have a conversation about this, to make sure that they wouldn’t potentially be leaving the main borrower in trouble.
We would recommend taking out a policy to back yourselves up in case that did happen. It would save the main borrower worrying about not being able to afford to remortgage without the joint borrower’s income.
If the guarantor were to pass away, in practice they’ll be taken off the mortgage. The property will continue to be 100% owned by the main borrower.
Do guarantors get credit checked?
Yes. They’re treated exactly the same as if they were a full applicant. They are credit checked and their income and outgoings will be checked too.
Can I stop being a mortgage guarantor?
Yes, you could and we do this quite a lot. Often after a few years, the main borrower’s income has gone up. Or, maybe they’ve now got a partner and they want to take over that borrowing themselves.
We would then remortgage them to a new lender. We could add on a new partner or, if it was affordable, we would just remortgage in their sole name and take off the guarantor.
If your mortgage term is 30 years, you could do that at any time as long as the main borrower could afford to take the guarantor off.
Can I get a guarantor mortgage with bad credit?
Some lenders will allow it. Again, it is down to what is deemed as bad credit.
We’ve had people come to us in the past thinking they’ve got bad credit, only for us to find it’s not too bad at all. Some lenders might be absolutely fine with it.
It’s down to each person’s circumstances. We need a good look at the credit file and then we could have an open and honest conversation with lenders as to whether or not they’ll accept it.
How do I get a guarantor mortgage? What’s the process?
Come and see your lovely mortgage brokers. This is something you might struggle with if you’re just going down the high street. It’s not something that’s widely advertised.
That’s where a mortgage broker comes into their own, because of the level of advice. We’re representative of the whole market. We look at the bigger picture and across all those lenders to see who could help you.
It’s then a normal application process. The part that is different about a Joint Borrower or Guarantor mortgage is really the legal detail in the background.
What else do we need to know about guarantor mortgages?
If you’re looking at a guarantor / Joint Borrower mortgage, you will normally need independent legal advice – particularly if you are the guarantor.
All that entails is having a documented conversation with a solicitor who signs off that you’ve had independent legal advice, and you understand the risks and ramifications of going on a mortgage on a property that you do not own.
Effectively, it means you are responsible for a debt where you will not own anything at the end of it. That’s very important for the guarantor to understand. It’s why generally only immediate family members want to get into that kind of arrangement – it’s a big commitment.
Even though we can’t give independent legal advice as mortgage brokers, it’s something we always point out to everyone. We want to make sure they are aware of the risks so there are no nasty surprises down the line. We’d hate to hear that someone wasn’t fully aware of what they’ve signed up to.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.