Guarantor Mortgages

If you’re struggling to save up a deposit for a property, it’s worth considering a guarantor mortgage. With this type of loan, a parent or close family member takes responsibility for the repayments if the homeowner runs into financial difficulty.

While guarantor mortgages may sound like a straightforward way of getting onto the housing ladder, there’s plenty to consider before making an application.

This comprehensive guide rounds up everything you need to know, including who guarantor mortgages are suitable for, how they work, and steps you can take to increase your chances of getting approved for one.

What is a guarantor mortgage?

A guarantor mortgage is a special type of home loan where a close family member – usually a parent or grandparent – agrees to step in and cover the repayments if the homeowner can’t afford to do so. They can be a great option for anyone who might otherwise struggle to get on to the property ladder.

They are most commonly used by first-time buyers with little or no deposit. However, they’re available to any borrower struggling to get a traditional mortgage. For example, if they have low income, a bad credit score or no credit history.

Is a springboard mortgage the same as a guarantor mortgage?

Yes. Different lenders call their products different names but they’re essentially the same thing. You may also see the term family mortgages used.

How do they work?

They’re pretty similar to standard mortgages. The big difference is a guarantor signs a legal agreement saying they’ll pay the mortgage if the homeowner can’t. The guarantor isn’t named on the title deeds and doesn’t own a share of a property. They just agree to take on some of the financial risk.

Guarantors are typically asked to put their own property or savings up as collateral so lenders tend to insist you take legal advice before entering into any agreement.

How much can you borrow with a guarantor?

Maximum mortgage borrowing is calculated in the same way for guarantor mortgages compared to standard residential agreements. The amount you will be offered will be based on anywhere between 4.5 and six times your annual income.

With a guarantor supporting you, your chances of securing one of the higher income multiples might be greater.

Use our calculator below to get a rough idea of your maximum borrowing.

Who can be a guarantor for your mortgage?

Most lenders would expect your guarantor to be someone who has a close relationship with you. So, the obvious candidates to choose would be a parent or grandparent but, technically a guarantor could be anyone as long as they can satisfy the following:

• They must own a property with sufficient equity to satisfy the lender’s requirements for the security to cover your mortgage repayments

Or….

• They must have sufficient savings held on account to cover the security required
• They must also have a clean credit record
• They will need to confirm to a lender they’ve taken the appropriate legal advice and understand their obligations within the context of the mortgage agreement

How to get a guarantor mortgage

Getting a guarantor mortgage is slightly trickier than getting a standard mortgage. Here are three simple steps you can take to boost your chances of getting your application approved…

Step 1. Get your guarantor onboard early

There’s no point starting your application before you have a guarantor lined up. Most lenders require your guarantor to be a parent or a close family member over the age of 21.

Start the conversation early and give them plenty of time to think it over. Being a guarantor is a big commitment and they’ll probably want to take legal advice before agreeing to anything.

Step 2.  Speak to an experienced broker

Far fewer lenders offer guarantor mortgages so before you apply you should always speak to a broker, specifically one who specialises in this type of loan. They’ll be able to tell you which lenders to approach and which to avoid, saving you the stress and expense of wasted applications.

A broker can also find you the best rates and negotiate deals on your behalf. They also get access to exclusive deals, which aren’t available to the general public.

We have a network of highly experienced brokers ready and waiting to help you.

Get in touch and we can arrange for one who specialises in guarantor mortgages to contact you directly.

Step 3.  Get all necessary paperwork in order

Both you and your guarantor will need to provide the lender with a lot of paperwork before your application can be approved, including proof of ID and evidence of income. Being organised and having the right documents together can speed up the process and potentially avoid any unnecessary delays.

Your broker will be able to tell you the exact paperwork required. Also, have a look through our mortgage application guide for more details.

Eligibility criteria

You and your guarantor will have to meet certain eligibility criteria for your loan to be accepted. Different lenders will have different criteria but there are some general requirements most will ask you to meet.

Criteria for borrowers

• Deposit: these loans are designed specifically for borrowers with low deposits. Most mortgage lenders will require a deposit of at least 5%. As with all mortgages, having a larger deposit will unlock more choice and better rates.
• Outgoings: if you have significant outgoings such as large loan repayments, the amount you can borrow may be limited.
• Age: some lenders have a minimum age limit of 21. If you’re under 21, a specialist lender may accept your application. At the other end of the spectrum, many providers have an upper age limit of 75 or 80.
• Property type: you may need the help of a specialist lender if the property you’re buying is considered ‘non standard’ construction – for example, it has a thatched roof or is a high rise flat.
• Employment type: lenders will consider you a higher risk borrower if you’re not a salaried employee, for example, if you’re self-employed or run your own business.

Additional criteria for guarantors

• Property owner: most lenders will require your guarantor to own their own home. They’ll either want it to be owned outright or insist the guarantor has sufficient equity in it. For example, some lenders will ask that the guarantor owns at least 30% of the property they’re putting up as collateral.
• Savings pot: some lenders will request that your guarantor deposits a lump sum of money (between 5% and 20% of the property value) into a savings account, which is held by the lender. The money is held for a certain period of time or until a certain amount of the mortgage has been repaid.

Criteria for both borrowers and guarantors

• Affordability: your lender will carry out a series of checks to make sure you can afford the loan. Most will let you borrow 4.5 times your salary but some will offer as much as 6. You can use a guarantor mortgage calculator to work out how much you can afford to borrow.
• Your lender will also want to ensure your guarantor has enough income to cover the mortgage payments in the event you default. The amount of income required will vary depending on the lender’s specific criteria.
• Credit history: having a good track record of paying back loans will improve your chances of getting your application approved. Your guarantor will also need a clean credit history and no track record of financial problems. You should both check your credit reports before making an application and correct any errors.

Who offers these loans?

Several UK lenders offer guarantor mortgages.

At the time of writing, these include:

• Nationwide
• Barclays
• Mansfield Building Society
• Vernon Building Society
• The Loughborough Building Society
• Family Building Society

A host of specialist lenders also offer these products. Each will have their own criteria regarding the type of borrower they will or won’t lend to. For example, some will consider applicants with bad credit.

An expert broker will be able to advise you on the best lender for your circumstances.

Typical rates

In general, rates on guarantor mortgages are higher compared to standard mortgages because lenders view them as riskier investments.

When deciding on a rate, lenders will consider the financial circumstances of both you and your guarantor but currently (May 2023) you should expect to pay in the region of 5%-5.5%. Specialist lenders tend to offer the most competitive rates.

Connect with a guarantor mortgage expert today

Guarantor mortgages are worth considering if you’re an aspiring homebuyer struggling to get approved for a standard home loan. However, they are complex products so you should always seek independent advice before making any decisions.

A specialist broker can advise you on whether this type of loan is right for you and match you with the best lender for your circumstances.

We work with brokers who have a track record of helping people secure guarantor mortgages. Give us a call on 0808 189 0463 or make an enquiry and get matched with an expert today for a free initial conversation.

We hand-pick all the advisors in our network and rigorously vet them so you know you’re getting the best possible advice.