Guarantor
Mortgages
A Guarantor Mortgage is a home loan where someone else, usually a close family member, agrees to be responsible for your mortgage repayments if you can't make them.
An introduction to guarantor mortgages
Are you finding it tough to get a mortgage approval? Whether it’s the size of your deposit or your income that’s holding you back, a Guarantor Mortgage could be a solution. In this guide, you’ll learn everything you need to know about how Guarantor Mortgages work, who can be a guarantor, and the risks involved. We’ll cover how much you can borrow, which banks offer these types of mortgages, and whether you even need a guarantor. Plus, we’ll walk you through a real-world case example to show how these mortgages could work for you.
What this page covers:
What is a Guarantor Mortgage?
A Guarantor Mortgage is a home loan where someone else, usually a close family member, agrees to be responsible for your mortgage repayments if you can’t make them. This means that your guarantor offers the lender additional security, making them more likely to approve your mortgage.
A Guarantor Mortgage might allow you to:
- Borrow more money than you could on your own.
- Get a mortgage with a smaller deposit or no deposit at all.
- Potentially qualify for a lower interest rate.
The key difference with a Guarantor Mortgage is that the lender has two parties to hold accountable for the debt: you, as the borrower, and your guarantor. This gives the lender more confidence, even if you have a lower income or bad credit.
A guarantor for a mortgage may have to secure the loan against either:
- A property of their own: The lender will hold a charge on the security property, meaning the guarantor of the mortgage could potentially lose it through a repossession if the borrower misses too many payments.
- Their savings: The mortgage loan guarantor places a lump sum from their savings into an account held by the lender. This money is locked in for the initial fixed rate, i.e. 2 or 5 years, and you are not allowed to withdraw from these Funds. These Funds act as collateral in the event of non-payment of the Mortgage
When Lenders use a Guarantors savings as Collateral for a Mortgage, there are 2 ways of doing this:
- A Family Deposit Mortgage – is when the guarantor puts up savings as security instead of a charge against their property. The cash is put into a savings account for an agreed term until the mortgage amount has been paid off, at this point, the guarantor gets their money back with interest.
- A Family Offset Mortgage – This is a variation of a typical offset mortgage where the guarantor’s savings do not earn any interest; however, any interest accrued can help lower the monthly payments or shorten the mortgage term, reducing the total loan amount. A family offset mortgage can work by helping to either shorten the loan term or decrease your monthly repayments.
Who can be a Guarantor?
Not just anyone can be a guarantor. Typically, lenders look for someone with:
- A strong credit history.
- Stable income.
- Equity in their own property.
- Lump sum of money
- Low debts
Your guarantor is usually a family member, such as a parent or close relative, but we have access to lenders who also allow friends to act as guarantors who can be a Guarantor. However, most banks will want the guarantor to have an established financial standing and a clear understanding of the commitment.
Your guarantor must realise that if you default on your mortgage, they will be responsible for the missed payments. That’s why all Guarantors are required to seek independent legal advice before committing to the role.
Does being a Guarantor affect getting a Mortgage?
Yes, being a guarantor can impact your guarantor’s ability to get a Personal mortgage in the future. When someone acts as a guarantor, they are party to the Mortgage Application, and lenders consider this a financial liability. Even if they don’t have to make any payments on your mortgage, the fact that they’ve guaranteed your loan could limit how much they’re allowed to borrow for themselves.
For example, if your guarantor plans to move house or remortgage, their lender will assess the potential risk of them having to repay your mortgage and their own. This could reduce the amount they can borrow or affect their interest rate. It’s essential that your guarantor fully understands this risk before agreeing to help.
How much can you borrow with a guarantor Mortgage?
With a Guarantor Mortgage, you may be able to borrow more than a traditional mortgage because the lender considers both your financial situation and your guarantor’s backing. Depending on the guarantor’s financial strength, lenders may offer up to 100% of the property value or more.
Factors that impact how much you can borrow include:
- Your income: Lenders typically calculate affordability based on your income types of income, but with a guarantor, they may extend the amount.
- Credit score: While your credit score is still relevant, the guarantor’s good credit can offset some risks.
- Deposit: Whilst it is increasingly difficult to arrange a mortgage with a guarantor, some lenders offer 100% loan-to-value (LTV) mortgages, which means you might not need a deposit at all.
For example, if you’re earning £30,000 per year, some lenders might cap your borrowing at 4.5 times your salary, giving you a maximum loan of £135,000. However, with a strong guarantor, that amount could increase significantly, and some lenders might increase this to 5 times your salary.
So, using a Guarantor could increase the amount of Mortgage you could borrow.
Which banks offer Guarantor Mortgages?
Several UK banks and building societies offer Guarantor Mortgages, although their terms vary widely. The most common lenders that offer these types of mortgages include:
- Barclays: Offers Family Springboard mortgages, where family members can help by putting savings into a particular account as a guarantee.
- Lloyds Bank: Provides Lend Hand mortgages, which allow family members to support you by offering their savings or property as collateral.
- NatWest: Features a Family Mortgage scheme where parents can use their savings or home equity as security.
- Santander: Offers a Family Guarantee mortgage option with flexible terms.
- HSBC: Has similar family-backed schemes.
Each lender has different eligibility criteria and requirements, so it’s essential to shop around. We have access to all the above Lenders.
Risks & responsibilities of being a Guarantor
Being a guarantor carries significant financial risks. If you are asking someone to act as your guarantor, make sure they understand the following:
- Liability: The guarantor is liable for your mortgage payments if you default. This means they could end up paying part or all of your mortgage.
- Property as security: Sometimes, your guarantor’s property may be used as security for the loan. If you can’t make repayments and they can’t either, their home could be at risk.
- Their savings: The mortgage loan guarantor places a lump sum from their savings into an account the lender holds. They cannot withdraw from this pot for a set number of years (usually between 3 and 5) or until a certain amount of the mortgage loan has been repaid. Savings will usually accrue some interest while held in the lender account.
- Impact on borrowing: As mentioned, being a guarantor can reduce borrowing capacity for other financial commitments like personal mortgages or loans.
- Long-term commitment: The guarantor remains liable until the mortgage is paid off or until the lender is satisfied that you can manage the loan independently.
Your guarantor must understand these responsibilities and risks before agreeing to help.
How many times salary for a Guarantor Mortgage?
With a traditional mortgage, lenders typically offer you a loan of up to 4 to 4.5 times your annual salary. However, with a Guarantor Mortgage, you might be able to borrow 5 times your salary and, in some cases, even more. This depends on:
- The guarantor’s financial standing.
- Your overall financial picture.
- The lender’s specific terms.
For example, if you earn £40,000 annually, a standard mortgage might allow you to borrow £160,000 to £180,000. However, with a strong guarantor, that amount could increase to £200,000 or more, giving you extra borrowing power.
Do you need a Guarantor for a Mortgage?
If you have enough Income & Deposit, you will not need a guarantor to get a mortgage, but a guarantor can be incredibly helpful in certain situations, such as:
- Low credit score: If your credit history isn’t strong enough to qualify for a traditional mortgage.
- Insufficient deposit: When you don’t have enough savings for the deposit required by lenders.
- Low income: If your salary doesn’t meet the lender’s affordability criteria.
- First-time buyers: Many first-time buyers use guarantor mortgages to get on the property ladder when they haven’t had the chance to save enough or build credit.
A guarantor could mean the difference between getting your dream home now or waiting until you can qualify. If you’re unsure whether you need one, a mortgage broker can assess your situation and guide you toward the best solution.
Case Example: Guarantor Mortgage with calculations
Scenario:
John is a first-time buyer earning £30,000 a year. He has a small deposit of £5,000, but this isn’t enough to meet the minimum 10% deposit requirement for a traditional mortgage on the £200,000 home he wants to buy. His father, David, agrees to be his guarantor. David has good credit owns his own home with significant equity, and has no significant debts
Without a Guarantor:
- Income: £30,000
- Typical Income multiple: 4.5
- Max Loan: £135,000
- Required Deposit: £65,000 (as the house costs £200,000)
John’s Deposit: £5,000 (falling short by £60,000)
With a Guarantor:
With a Guarantor:
- John’s Income: £30,000
- Father’s Financial Standing: £200,000 equity in his home, stable income.
- Enhanced Income multiple: Increased to 5.5 times salary, thanks to the guarantor.
- Max Loan: £165,000
- Deposit: John can now borrow 100% of the property value, so no deposit is required.
Result: With his father acting as a guarantor, John is approved for a £165,000 mortgage. He can now buy the £200,000 home with only his £5,000 deposit.
This example shows how a guarantor can significantly boost your borrowing power, making homeownership more achievable even if you don’t meet the standard criteria. A mortgage broker can help you explore similar options based on your situation.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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