A guarantor mortgage is a type of loan where a family member or parents takes on some of the risks by acting as guarantor for the individual. This could be done by offering their home or savings as a security against the loan and the guarantor will cover the mortgage payments if the homeowner defaults. Some of the guarantor mortgages will allow you to borrow 100% of the property’s value by using your parent’s collateral in the place of deposit and some have different criteria to follow.
A mortgage with a guarantor could also help you to borrow more from the mortgage lender but the downside is that a guarantor could be liable for any shortfall if the property has to be sold and repossessed. The guarantor would then need to pay back the money borrowed plus interest, costs and legal fees. If you are considering this option it is important to check how much you can borrow and what the terms of repayment are before taking out the guarantee. You may not be able to borrow as much as you think if you have other debts such as credit cards or loans.
Who are guarantor mortgages suitable for?
A guarantor mortgage is suitable for the people who are interested in buying a property with a low income, a small deposit, bad credit history or no credit history. It is also ideal for those who want to buy a house without having to make a large down payment. A mortgage with a guarantor uk is possible from different lenders. As a specialist mortgage broker, we are dealing with parent guarantor mortgages for a long time. As a first-time buyer, If you are interested in a mortgage with a parent guarantor, you can contact our team of mortgage brokers to help you with a suitable mortgage deal.
Guarantor liability if you can’t pay your mortgage
Your guarantor doesn’t need to get involved if you miss your mortgage payments. You’ll be held accountable if you default on your loan. If you default, the bank may repossess your house and then sell it to recoup some of the money it lent you. Your guarantor might also lose out because the bank may take money from your savings or other assets. Mortgage loans should be paid off before the house is sold because if there is a problem with the loan, the bank can repossess the house without having to pay you back. You can get a better rate than the bank when you remortgage.
Types of guarantor mortgages
Guarantor mortgages come up with various names and affordability criteria but overall there are only two main categories.
1: Savings as security: Some mortgage lenders will only offer a mortgage when a family member will deposit 5-20% of cash of the property price in a special saving account. This money is considered as a security for your mortgage for a couple of years or until the amount owned falls under a certain percentage of the house value. The guarantor member may earn interest on the money linked to this type of mortgage, so overall it’s a win-win situation. The interest rate might be lower as compared to other savings accounts.
In case, the borrower has missed any mortgage repayments, the lender could hold on to the guarantor’s savings for a longer period. Also, if the mortgage lender has to repossess and sell the property and received low price than the still owned on the mortgage, they could recoup the difference from the guarantor’s savings.
2: Property as security: These deals involve a charge being made against the guarantor’s properties. This means that to qualify, the guarantor must own a large portion of their property outright. If the lender had to repurchase and sell the guarantor’s property for less than the outstanding debt, the guarantor could potentially lose their home.
The advantage of these types of mortgages is that the risk is shared between the guarantor and the lender.
Benefits of a guarantor mortgage
There are many benefits associated with a guarantor mortgage. They include:
• Lower rates than conventional mortgages.
• No application fees.
• Flexible repayment options.
• No monthly service charges.
• Lenders often have more flexible terms and conditions.
Getting a guarantor mortgage is a complicated process and you may need to contact a market broker for your mortgage application.
FAQs- Mortgage with a guarantor
Can I get a guarantor mortgage?
A Guarantor mortgage is the best way to start your journey onto a property ladder in the UK. You can get a mortgage with a guarantor in the UK, but you may need to contact an independent mortgage broker for your financial and legal advice.
How do guarantor mortgages work?
A guarantor mortgage allows lenders to take over a loan when borrowers fail to pay back the money. Guarantors add their names to the legal documents, but they don’t actually own any part of the house. They agree to make the repayments if the borrowers can’t.
A guarantor mortgage works by putting money into a savings account. The bank takes this money and pays it towards the mortgage. This means that if the loan doesn’t pay back, then the bank uses your savings to cover the debt. Your savings could lose out on interest, but you’re guaranteed to get paid back. A guarantor is someone who promises to pay if you do not pay your loan. In this case, the person who guarantees the loan gets to keep whatever he/she has put into the bank but doesn’t get any interest. This means that the person who guarantees the debt does not benefit financially from having the loan.
Who can be a guarantor?
You can be a guarantor for anyone else’s mortgage. It’s usually the parents or siblings of the borrower who guarantee the loan. However, there are some exceptions. For example, if you’re married to the borrower, you cannot be a guarantor. Also, if you’re under 18 years old, you cannot be a co-guarantor. If you are looking for a guarantor, you must do your own research and get independent legal advice. You can also contact our team of financial advisers who can help you with the process of guarantor mortgages and start your journey onto the property ladder in the UK.
Who can get a guarantor mortgage?
If you want a guarantor mortgage, you will need to meet certain criteria. You’ll need to be at least 21 years old and have been working for at least 3 months. You will also need to have a good credit rating (a score of 700 or above). Finally, you should be able to show proof that you have enough income to repay the loan. You can check your credit score report here.
What is the difference between a guarantor mortgage and a secured mortgage?
The main difference between a guarantor and a secured mortgage is that the guarantor is only liable for the amount of the loan. Secured loans require the borrower to provide collateral as security for the loan.
What are the potential risks involved in a guarantor mortgage?
Being a guarantor in a mortgage means the person is legally responsible for paying the mortgage if the borrower failed to do so. In the worst cases, a guarantor could also lose his/her own home because of the mortgage defaults. Therefore, it is important to understand all the risks associated with being a guarantor before signing up. If you are interested, our team of financial advisers can give you more information about the risks involved in a guaranty mortgage.
Do guarantors get credit checked?
Guarantors do have their credit checks done, but most lenders will want to know your credit score before approving you for a loan. A soft credit check won’t affect your credit score, but it will show up when other lenders look at your file. A hard credit check will include checking your credit history. Some people think that they don’t need a guarantor mortgage because their credit scores are good. But this isn’t always true. Even if you have a perfect credit score, you still may find yourself unable to borrow money due to the risk of defaulting on the mortgage. So, even though you might have a great credit score, a lender may decide that you aren’t suitable for a guarantor mortgage.
What happens if a mortgage guarantor can’t pay?
If the borrower fails to make monthly repayments on time, the lender has the right to take possession of the property. The lender then sells the house and uses the proceeds to pay off the outstanding balance. After this, the lender keeps any remaining funds. This is called foreclosure. If the guarantor doesn’t pay, he/she loses the property.
What if your mortgage guarantor dies?
Every lender has different policies for this type of situation. Some will need you to add a new guarantor to the mortgage, or some may agree with the guarantor properties to pay off some of the mortgages in case of default. It’s best to contact your lender to see what options are available to you.
Can I get a joint guarantor mortgage?
Unlike traditional joint mortgages, these are different. You can apply for a joint guarantor mortgage. However, there are some conditions which must be met. For example, both parties must be over 18 years of age and have been employed for at least three months. They must also have a steady income and sufficient assets to cover the payments. You should also check whether the bank will accept the application. If you are interested in a joint guarantor mortgage, it is better to contact a mortgage adviser before starting the new application for such mortgage product.