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).
Some guarantor mortgages even allow you to borrow 100% of the property's value by using your parent's collateral in place of a deposit.
On the plus side, guarantor deals might help you get a mortgage or allow you to borrow more.
The main downside is that the guarantor could be liable for any shortfall if your property has to be repossessed and sold.
- Find out more: how much deposit do you need for a mortgage?
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 to lend you based on your income, so having a guarantor may enable you to get a bigger loan.
- A small/no deposit: you could potentially 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 loan.
- 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.
- Find out more: getting a mortgage with a bad credit score
Who can be a mortgage guarantor?
Many lenders will require the guarantor for your mortgage to be a close 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 won't have to do anything.
However, if missed repayments mean that the lender has to repossess and sell your property, both you and your guarantor would usually be responsible for any shortfall if the property is 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).
Types of guarantor mortgages
Guarantor mortgages all come with slightly different names and eligibility criteria, but they generally fall in to one of these two categories:
Savings as security
Some lenders offer mortgages where a family member deposits cash (typically 5%-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 (eg 80%) of the property's value.
Your family member can usually earn interest on the money linked to your mortgage, although the rate might be lower than 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.
Before the coronavirus outbreak, nine lenders offered these types of deals.
As of August 2020, Barclays, Family Building Society, Mansfield and Tipton are still open for applications. Halifax, Lloyds, Loughborough, Marsden and Saffron have all suspended their deals.
Property as security
These deals involve a charge being placed against the guarantor's property. This means that to be eligible, the guarantor will usually need to own a high proportion of their property outright.
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 stand to lose their home.
As of August 2020, Buckinghamshire, Family Building Society, Mansfield, Nationwide and Tipton offer these deals.
Bath, Loughborough, Marsden and the Post Office suspended their deals after the COVID-19 outbreak.
Joint and JBSP mortgages
Joint mortgages allow a parent and child to buy a property together, meaning both names are on the mortgage and the property deeds.
This means your parent can use their income and savings to boost your mortgage changes.
There are two big pitfalls, however.
First, the parent will be jointly responsible for the mortgage. Second, if they already own their own home, they will need to pay the second property stamp duty surcharge, which can run to thousands of pounds.
Joint Borrower Sole Proprietor (JBSP) deals also allow parents and children to club together to get a mortgage.
The big difference is that, while the parent and child are both named on the mortgage, only the child’s name will be on the property’s deeds, meaning the parent will be able to avoid the stamp duty surcharge
Older parents may struggle to get accepted and lenders may prefer applications where the child can prove their earnings will rise significantly in the future.
Unlike some products that use the guarantor’s savings or property as collateral, joint and JBSP mortgages will still require the buyer to put up a deposit, which varies from deal to deal.
Some lenders will consider JBSP applications on their standard products. Furness, Hinckley and Rugby, and Newcastle offer specific JBSP mortgages.
Guarantor mortgages FAQs
Can I get a guarantor mortgage with bad credit?
Lenders will decide this on a case-by-case basis. It is possible that the security a guarantor offers could offset the risk you pose as a customer.
- Find out more: with our guide to bad credit mortgages.
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 from 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.
- Find out more: how much can I borrow? Mortgage calculator
What happens if my guarantor dies?
This 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 usually 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.
Can you get good interest rates on guarantor mortgages?
Generally speaking, guarantor mortgages come with a higher interest rate than if you were taking out a standard mortgage.
This means you'll need to think carefully about whether you can afford the monthly repayments before taking the leap.
Is a guarantor mortgage a good idea?
A guarantor mortgage creates a financial link between parent and child, with your parent potentially putting their savings or property on the line if you default.
Money can be an emotive issue, so think carefully about whether this is a wise move.