Those who are unable to afford a mortgage on their own could qualify for help from a guarantor. These are specialised mortgages that include family deposit and family offset mortgages.
What is a guarantor mortgage?
With a guarantor mortgage you are essentially acquiring a home loan that is secured against a parent or close family member who acts as guarantor. This means the loan is secured against your guarantor’s home or savings and will make them responsible for making monthly repayments should the homeowner miss payments.
Who can get a guarantor mortgage?
Guarantor mortgages are suitable for a number of people who are unable to secure a conventional mortgage. Most commonly, guarantor mortgages are used as first-time buyer mortgages or are sought by those on low incomes as most mortgage offers are based on a buyer’s monthly income. With a guarantor it can enable you to get a bigger loan than you could afford alone.
Saving for a deposit is the hardest obstacle for first time buyers but with a guarantor mortgage you could borrow up to 100% of a property’s value.
Those with a bad credit score or those with limited to no credit score whatsoever can also benefit from a guarantor mortgage, as with the support of a family member you are more likely to receive an offer from a lender.
Who can be a guarantor?
In most cases your guarantor will have to be someone directly related to you, either a family member or parent. In order to qualify as a guarantor they will have to have savings or property as lenders will place those savings in a locked account or take legal ownership of part of their property in order to secure the mortgage.
They will also have their credit history checked to ensure they are financially reliable and have received legal advice so they are fully aware of the risks of becoming a guarantor.
What types of guarantor mortgages are available?
Savings as security mortgages
This is one of the most common guarantor mortgages where lenders will take 10-20% of the property value from the guarantor as a deposit and place it into a secure account. The lender holds this amount until a certain amount of the total mortgage is paid off before being released back to the guarantor, usually around 80%.
Property as security mortgages
In this situation a lender will take a certain share of ownership of the guarantor’s owned property. This requires the guarantor to own a certain amount of the property to begin with and rates vary between lenders, typically between 25-60%.
Family offset mortgages
With this option the amount of the mortgage paid upfront by the guarantor is deducted from the total mortgage meaning the buyer will have to pay less interest per month. The money paid in by the guarantor will sit in an account and won’t receive any interest whilst it is held by the lender. The guarantor won’t be able to access the money again for a pre-arranged period of time either.
Missed payments could result in the family member not seeing their money for an even longer period of time.
Family Link Mortgages
A family link mortgage allows you to borrow up to 100% of the property’s value, giving you, for example, a 90% mortgage on the property to be purchased plus 10% as a mortgage secured against your family’s home.
Both guarantor and buyer are responsible for paying back the 10% within five years. If any payments are missed then your family member is only responsible for the 10% secured against their home, not the entire amount.
Compare guarantor mortgages
If you are struggling to secure a mortgage and think that a guarantor mortgage may be your best option, visit our preferred partners at Mojo Mortgages to take advantage of their fee-free mortgage broker service to compare mortgage rates from all UK lenders and find the products that you qualify for.