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Guarantor mortgages

Find out what a guarantor mortgage is, the pros and cons, and the different types - including family deposit mortgages and family offset mortgages.

In this article
What is a guarantor mortgage? Video: guarantor mortgages explained Who are guarantor mortgages suitable for? Who can be a mortgage guarantor?
Guarantor liability if you can't pay your mortgage What types of guarantor mortgage are available? Guarantor mortgages FAQs

What is a guarantor mortgage?

A guarantor mortgage is a home loan where a parent or close family member takes on some of the risk of the mortgage by acting as a guarantor. This usually involves them offering their home or savings as security against the loan, and agreeing to cover the mortgage payments if the homeowner defaults (misses a payment).

On the plus side you might be more likely to get a mortgage, borrow more or qualify for a lower interest rate. The main downside is that the guarantor will sometimes be liable for any shortfall if your property has to be repossessed and sold.

You can borrow up to 100% of a property's value with a guarantor mortgage, although 100% mortgages are very rare and it may be easier to get approved if you put in a deposit of 5% or more.

Video: guarantor mortgages explained

Who are guarantor mortgages suitable for?

A guarantor mortgage could be suitable if you're looking to buy a property with:

  • A low income: lenders will decide how much mortgage to offer based on your income - having a guarantor may enable you to get a bigger loan.
  • A small deposit, or no deposit: you could borrow up to 100% of a property's value with a guarantor mortgage.
  • A bad credit score: having a guarantor might make a lender more inclined to offer you a mortgage.
  • Little or no credit history: for example, if you've never had a credit card.

An independent mortgage broker can give you more in-depth advice on whether a guarantor mortgage is suitable for you.

Who can be a mortgage guarantor?

Many lenders will require the guarantor for your mortgage to be a family member - usually a parent. Your guarantor will need to have:

  • Savings or property: lenders will either hold some of your guarantor's savings in a locked account, or take legal charge over a portion of their property, to secure the mortgage.
  • A good credit history: so lenders can trust that they are financially reliable.
  • Received legal advice: a requirement from some lenders, in order to confirm guarantors are aware of the risks.

You can find out more about the risks and alternatives in our guide to how parents can help first-time buyers.

Guarantor liability if you can't pay your mortgage

If you don't miss your repayments, your guarantor never has to do anything. 

However, if missed repayments meant that the lender had to repossess and sell your property, both you and your guarantor would usually be responsible for any shortfall if the property was sold for less than the amount still owed on the mortgage.

For example, if you owed the lender £150,000 but they were only able to recover £125,000 by repossessing and selling your property, the £25,000 difference could be taken from your guarantor's savings or property, depending on what they used to guarantee the mortgage.

The best way to minimise this risk is to remortgage as soon as you can to a deal which doesn't require a guarantor. This will be possible as soon as you've built up enough equity in your property (by paying down your mortgage plus any growth in its value), although it may be worth waiting until you're out of the fixed-rate period if applicable to avoid early repayment charges.

What types of guarantor mortgage are available?

Over the last couple of years increasing numbers of guarantor mortgages have been launched, often with different but similar names. Below, we explain some of your options and how they differ.

Savings as security

Some lenders offer mortgages where a family member deposits cash (typically 10-20% of the property price) in a special savings account.

The money is held as security for your mortgage for a set number of years, or until the amount you owe falls below a certain percentage (e.g. 80%) of the property's value.

Your family member can still earn interest on the money linked to your mortgage, although the rate might not be as good as they'd get with other savings accounts.

If you miss any mortgage repayments, the lender could hold on to your family member's savings for a longer period. If the lender had to repossess and sell your property, and received less than what you still owed on your mortgage, they could recoup the difference from your family member's savings.

There are a number of savings as security guarantor mortgage deals on the market. The table below lists some of the available deals.

Provider Mortgage name Savings required (% of new property cost) When are the savings unlocked? Interest paid on savings
Barclays Family Springboard Minimum 10% Three years 2.25%
Family BS Family Mortgage – Security through Savings Varies On review 1.15%
Lloyds Lend a Hand Minimum 10% Three years 2.50%
Loughborough First Time Buyer Family Deposit £5,000 – £75,000 Once amount guaranteed has been repaid None
Marsden Family Step Up to 20% One mortgage reaches 80% LTV 1.35%
Mansfield Family Assist 20% Seven years 1.00%
Saffron Family Support 5% Five years 0.75%
Tipton Family Assist 20% Once mortgage reaches 80% LTV 0.20%

Property as security

Your family member will usually need to own a certain share of their property outright. This varies between lenders but can be between 25% and 60%.

In the worst case scenario, if the lender had to repossess and sell your property for less than the amount remaining on the mortgage, your family member could lose their home.

Family offset mortgages

With a family offset mortgage, such as those offered by Vernon Building Society and Family Building Society, your family member puts their savings into an account linked to your mortgage. They won't earn interest on their money, but the amount equal to their savings is deducted from the amount of the loan you pay interest on.

For example, if you took out a mortgage of £100,000 and your family member deposited £20,000 into the account, you would only pay interest on £80,000 of the loan, reducing your monthly repayments.

But there are downsides to this type of mortgage for your family member. While they'll eventually get their money back in full, they might not be able to access it for a pre-agreed number of years, or until your outstanding loan reaches a set amount - for example 75% of your property's value - which could take some time.

If you miss any mortgage repayments, the lender could hold on to your family member's savings for a longer period. If the lender had to repossess and sell your property, and received less than what you still owed on your mortgage, they could recoup the difference from your family member's savings.

Family Link mortgage

With the Post Office Family Link mortgage you can borrow up to 100% of a property's value. You take out a 90% mortgage on the property you're buying, and the remaining 10% as a mortgage secured against your family member's home, which they must own outright.

Both you and your guarantor are responsible for the 10% loan, which is repaid in the first five years. If you miss any of your mortgage repayments, your family member is only responsible for the 10% that you borrowed against their home.

At the time of writing, the Family Link mortgage worked out as a relatively expensive option. The initial interest rate of 3.89% (which is a five-year fixed rate) was a fair bit higher than the best rate of 2.37% on a regular five-year fixed-rate 90% mortgage.

But comparing mortgages is never simple: some mortgages have fees while others don't, and with the Family Link you'd also need to take into account the 10% loan against the family member's property.

For that reason we'd always recommend talking to an impartial mortgage broker before making a decision.

Guarantor mortgages FAQs

 

Can I get a guarantor mortgage with bad credit?

 

If you have a poor credit history, there are still ways to get a mortgage. Lenders will decide on a case-by-case basis, but it is possible that the security a guarantor offers could offset the risk you pose as a customer.

 

How much can I borrow for a guarantor mortgage?

 

With guarantor mortgages that require a deposit, the amount you can borrow will depend on how much you can afford to pay upfront and how much you can afford to pay month to month.

But some guarantor mortgages are 100% mortgages, meaning you won't have to put down any deposit. In these cases, the amount you can borrow will be based on your affordability, and potentially how much your guarantors will be able to secure. 

 

What happens if my guarantor dies?

 

If your guarantor passes away during the course of your mortgage, the way forward will depend on your lender. Some require a new guarantor, while others will allow you to pay off some of the mortgage with your guarantor's estate. Check your lender's policy before you make your application.

 

Can I get a guarantor mortgage if my parents are retired?

 

Since your guarantor will likely secure your mortgage through savings or property, their income or employment status should not, in theory, make a difference. But since every mortgage deal is different, it's best to ask lenders, or your mortgage broker, to find out for certain.

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