Updated: April 25, 2022

Guarantor Mortgages

Considering a guarantor mortgage? It's not ONLY first time buyers who qualify! Find out what they are, the typical rates & how to get one in our expert guide.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: April 25, 2022

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.

Read on for more information or jump to the section that’s relevant to you via the links below…

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.

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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.

Property as collateral

With this type of loan, the guarantor can – in extreme cases – end up losing their home. This could happen if the lender had to repossess the property and there was a shortfall between the amount remaining on the mortgage and the sale price.

Savings as collateral

With these deals, the guarantor puts a lump sum of money into a savings account, held by the lender, which can’t be touched until an agreed proportion of the mortgage has been paid off. These savings tend to accrue interest and the guarantor will get their money back if all repayments are met.

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 no or low deposits, so some lenders will offer 100% loan-to-value (LTV) mortgages. However, others 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 you should expect to pay in the region of 3%. 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.

FAQs

Can my parents be a guarantor if they’re retired?

Yes, as long as they own their own property or are able to put up a lump sum of savings to secure the loan, this shouldn’t be a problem.

What happens if my guarantor dies?

Different lenders have different policies. Some may ask you to find a new guarantor, while others will let you pay off some of your mortgage using your guarantor’s estate if you’re a beneficiary in their will.

Will being a guarantor affect my credit rating?

As long as the borrower keeps up with their repayments, your credit rating shouldn’t be affected. If, however, the borrower defaults leaving you to cover the mortgage, this will appear on your credit report.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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