Guarantor Mortgage Alternatives

Guarantor mortgages can be a great option if you have financial support from your family, but they don’t suit all circumstances. And there are plenty of alternatives to choose from if you know where to look.

In this article, we’ll discuss some of the most common alternatives to guarantor mortgages and why getting matched with the right broker is the key to securing the best mortgage for your circumstances.

What are the alternatives to guarantor mortgages?

The main alternatives to guarantor mortgages are schemes and specialist mortgage products aimed at borrowers with low deposits, affordability issues and problems such as bad credit.

They include…

• Government schemes, including Help to Buy and Shared Ownership
• Other family-assisted mortgages, such as offset mortgages
• Specialist bad credit mortgages

Sometimes friends, family members or property developers choose to buy together simply to take advantage of more affordable rates or to spread their risk.

Which product is right for you will be determined by your individual circumstances and the reasons for seeking the loan.

How a broker can help you choose the right option

Whether you are using a government scheme to buy a house or relying on family, it’s important to speak to a broker. Finding the best deal for your circumstances will ensure you don’t put additional, undue pressure on your finances.

The right mortgage broker will have in-depth knowledge of every alternative to using a guarantor and can go through each option with you to help you choose the right one.

A broker will also make sure you only approach lenders who are likely to approve your application as rejections will adversely affect your credit score.

Government schemes

There are several government schemes designed to help people get on the property ladder and many of them can be used as a viable alternative to applying with a guarantor…

• First Homes Scheme: Discounts on property purchase prices are generally 30% but can be as much as 50%. To be eligible, you must already live locally and be a first-time buyer. Key workers are given priority.
• Help to Buy equity loan: The government will loan up to 20% of the deposit amount required for a new build home (up to 40% in London). The maximum loan to value (LTV) for the mortgage is 75% so you must be able to raise the other 5% of the deposit yourself.
• Mortgage Guarantee Scheme: If you have a 5% deposit and can get a 95% mortgage, you can use this scheme to buy your first or next home without needing to secure an equity loan against it.
• Shared Ownership: Shared ownership is an option if you need a mortgage but have little or no deposit, or cannot afford to buy an entire property. You buy a percentage of the property instead (between 10% to 75%) with a mortgage and pay monthly rent (usually to a housing association) for the part that you don’t own.

How to qualify for a mortgage through a government scheme

Many of the schemes have their own eligibility requirements. For example, Help to Buy is now exclusively for first-time buyers and Shared Ownership is restricted to specific properties, but the general mortgage criteria for these agreements is barely any different to standard residential mortgages.

The mortgage provider will base their lending decision on the following…

• Employment status: Specialist advice might be needed if you’re self-employed, your job situation is uncertain or your income type is ‘non-standard’.
• Affordability: Most lenders will offer you a mortgage based on 4.5 times your annual income, but some go higher than this under the right circumstances.
• Credit rating: Lenders can sometimes be more lenient about bad credit if the borrower is applying through a government scheme, but a specialist lender is often needed for customers with severe types of bad credit or multiple credit issues.

Family-assisted alternatives

Taking out a mortgage with a family member can be an alternative to using a guarantor if you have a reasonable deposit but affordability is proving an issue, or if your own credit rating is poor and theirs will make your application more palatable to lenders.

Once again, there is a range of products available and a broker can help you decide which one is right for you…

Joint mortgages

Joint mortgages are often used to add parents’ wealth to that of their children and strengthen an application. Some lenders will accept up to four names on a mortgage application so this type of borrowing is not restricted only to borrowing in conjunction with family members.

Increasing the number of applicants can improve:

• Deposit amount
• Affordability
• Loan to value
• Credit rating
• The size or type of property you can buy

Joint borrower sole proprietor mortgage

Commonly abbreviated to JBSP mortgage. This is where  both parties are named on the mortgage but not the deeds. This can help prevent parents who are already homeowners from having to pay stamp duty on what would otherwise be a second property.

Family offset mortgages

There are several different loans that come under this umbrella term. Essentially, this type of mortgage involves parents or grandparents placing money in a holding account in lieu of all or part of the applicant’s deposit.

Alternatives for bad credit applicants

Bad credit limits your choice of lenders and means you pay higher rates. If you can’t or don’t want to use a guarantor, one alternative is to speak to a broker about whether there are ways you could optimise your credit report to boost your eligibility.

These might include…

• Resolve account discrepancies
• Remove out of date financial associations
• Make sure you are on the voters register
• Close unused accounts

For a comprehensive guide to improving your credit rating, see our sister website, Online Mortgage Advisor.

Get matched with an expert mortgage broker

The first step to finding the right alternative to a guarantor mortgage is identifying the right broker. With our broking matching service, you will be matched with an advisor who has whole-of-market access and is experienced in sourcing the best alternatives to guarantor mortgages for people in your situation.

Call now on 0808 189 0463 or enquire online to arrange a no-obligation chat.