Do I need a Guarantor?
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Do I need a Guarantor? (Part 1)
What is a guarantor mortgage, and what is a parent guarantor?
A guarantor mortgage is where you have a supporting person on your application. The default is usually mum and dad. They come on to the mortgage application in some fashion, depending on the lender’s criteria.
They support the total income and ultimately help the applicant get a bit more borrowing. Clients looking for a guarantor mortgage are often First Time Buyers who want to buy at a slightly higher level than their income would allow.
Sometimes parents are looking to buy a property for a son or daughter going to university. We can use their income to support the mortgage application, and use the son or daughter’s name for ownership.
A guarantor mortgage is a really useful vehicle for parents and borrowers to get a bit extra than they would with a standard mortgage.
Do mortgage lenders still accept guarantors? Is it easier to get a mortgage if you have a guarantor?
Yes, mortgage lenders do still accept guarantors. It is quite niche. Some mainstream lenders will accept a guarantor profile mortgage, but not all of them. So obviously, you need to speak to a mortgage broker with access to all the lenders.
We will know who offers a guarantor mortgage, and within that, the differences in criteria – such as the age of the person.
It can be easier to get a mortgage if you have a guarantor, because it’s less risky for the lender. With more income involved in the overall application, they’re more receptive to lending the money you potentially need.
How does a guarantor mortgage work? What are the types of guarantor mortgage?
Most guarantor mortgages are now done on a basis called Joint Borrower Sole Proprietor (JBSP).
It sounds very technical, but it’s simply how we address that hypothetical scenario, where a son or daughter going to university and mum or dad are looking to buy a property for them to live in. Or, perhaps somebody is looking to buy a property but can’t quite get the borrowing they need.
We can pull in an extra applicant and use their income to support the full mortgage application. But we keep the ownership in the name of one individual applicant. That’s really important – because typically your guarantor will already own their own home. On a standard mortgage application there can be second home tax implications.
In Scotland, the additional dwelling supplement on Land and Buildings Transaction Tax is quite significant. Joint Borrower Sole Proprietor applications do not attract that, because the ownership is in just one person’s name
There’s also the standard guarantor mortgage where, depending on the lender’s criteria, you might only need to guarantee the amount that the applicant can’t afford in their own right.
Will I be able to borrow more with a guarantor mortgage?
Yes, because you have that additional income to give the lender more confidence. It gives the lender more affordability to work with.
So potentially there’s the option to to borrow more or, or if you’re just short of where you need to be, getting a guarantor involved can make a big difference to the borrowing capacity. Yet it might not seem like a huge difference in terms of monthly mortgage payments.
How much of a mortgage can I get with a guarantor?
It ultimately comes down to the income of every person associated with the application and their credit commitments.
Things to consider with a guarantor are whether they have hire purchase on a car or an existing mortgage. That will influence what the lender will let you borrow.
But in principle, having a guarantor to supplement the main applicant can only be a positive, and typically you gain more flexibility in what you can borrow to help secure the perfect property.
Do guarantor mortgages have higher interest rates?
No, they all have standard rates. They’re not set out as different products, and there are lots of different options available. Rates do vary on mortgages with lower deposits or higher Loan to Values.
There shouldn’t be any barrier with rate, whether you decide to go ahead with a guaranteed mortgage or not. Ultimately, it’s going to allow you to get a property at a slightly higher level.
Who is a guarantor mortgage suitable for?
It depends on the person’s individual circumstances. You’re probably in a scenario where you don’t quite have the income at this moment in time, but that will potentially change in future.
Imagine somebody studying at university with a part-time job. They know their income is going to go from X to Y in a relatively short period of time, but they want to go on the property ladder now, rather than rent. That’s a profile this would be suitable for.
Perhaps you’re going for a professional qualification and it might take four years to be qualified. Your income could be fairly low now, but in four years’ time it will be at a very different level. It’s a way to buy a residence you want, before you’ve got the income to allow a mortgage of that size.
There are also other situations – maybe somebody has just turned self-employed and has really good income, but they’ve not submitted any tax returns yet. They can afford the mortgage, but from a lender’s perspective, they won’t qualify. Again, a guarantor mortgage could be a helpful short-term measure.
How do you qualify for one?
The requirements are fairly standard, like any other residential purchase transaction. Typically you need to have a reasonable credit score and be on the voters roll. You need fairly low existing credit commitments and some income.
The actual guarantor also needs an income – either through employment or retirement income, depending on their age. In general, lenders look for affordability. Do the people on the application have the income to afford the monthly mortgage payments? Do they have a suitable credit history to obtain a mortgage?
What documents should I provide for a guarantor mortgage?
It’s the standard requirements: payslips, bank statements and ID.
Often when we get initial enquiries about a guarantor mortgage, the bulk of the questions we need to ask are in relation to the guarantor, their income and situation.
Often mum and dad are guarantors. The children might not necessarily know the ins and outs of their parents’ financial situation, so that’s usually the bulk of the information we need to gather.
Who can guarantee a mortgage?
It could be a family member, or a non-family member. Lenders all take slightly different stances around that. There are options, as long as the income’s acceptable, and they have suitable residency status and credit profiles.
What are the risks of a guarantor mortgage? What are the downsides of being a guarantor on a mortgage?
A lot of mortgages are now done on a Joint Borrower Sole Proprietor basis. Ultimately, the guarantor is agreeing that if the applicant fails to meet the monthly mortgage payments, they will step in and pay.
They are becoming legally liable for a property that they have no ownership over. That is the risk associated with it. As we said, anyone can potentially be a guarantor for the mortgage, but you would need to be very comfortable that the person you’re helping can afford the mortgage payments and will be diligent in making them.
But the advantages can far outweigh the risks, depending on your circumstances. It allows you to facilitate a transaction that probably wouldn’t happen without that guarantor’s support.
It’s down to the individual to assess whether the risk is justified. For many people, especially those looking to support a child, it means they can get into a property that’s safe, warm, secure and probably in a better area than they potentially would get otherwise. That tends to be people’s overriding priority.
It’s a specialist area where you need to take advice. Get in touch with a broker, because we can look at all the options available for you, recommend something and ultimately guide you.
THE INFORMATION CONTAINED WITHIN WAS CORRECT AT THE TIME OF PUBLICATION BUT IS SUBJECT TO CHANGE
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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Do I need a Guarantor? (Part 2)
How much does a guarantor need to earn for a mortgage?
There isn’t a set minimum. I’ve dealt with a lot of guarantor mortgages over the years and the overall purpose of this approach is to bolster affordability.
They are ideal for somebody who’s looking to buy their first home but can’t quite get the borrowing power they need with their own income. A guarantor can add their income to the application to help boost the overall lending amount. So a guarantor needs to have a sufficient income to help boost that overall affordability.
We also need to factor in the guarantor’s existing commitments. Typically, a guarantor tends to be mum or dad helping their son or daughter to buy their first home. Very often, that guarantor may still have a residential mortgage on their own house, so we need to factor in that commitment.
To answer the question, there isn’t a set minimum – it’s all relevant to a client’s individual circumstances.
What happens if my guarantor is unable to make repayments too?
The probability of both the main applicant and the guarantor being unable to make the mortgage payment would be fairly slim. However, if that was the situation and there were concerns over making the payments, you need to speak to the lender and your mortgage broker to find a solution. Typically there will be a way forward.
Communication is really important. Let your lender understand the circumstances and agree what the next steps will look like. Ultimately, lenders do have the option to repossess the property, so you potentially could lose the home, but that’s only done as a last resort.
Lenders typically want to work with applicants and guarantors to find an outcome that suits everyone.
Can I get a guarantor mortgage for a Buy to Let property?
It is technically possible to get a guarantor mortgage for a Buy to Let property, but it is rare and most lenders don’t allow it. In general, the payments for Buy to Let properties are much lower, as you’re usually doing it on an interest-only basis.
It’s also lower risk, because the mortgage will typically be covered by the tenant’s rent. That means there’s less chance of somebody not being able to get the borrowing they need, or potentially not be able to make the payments. Even if they lose their own income, there is still that rental income coming in.
Can a parent be a guarantor if they are retired?
Yes, they can. It depends on their retirement income – whether that’s the state pension or a private pension. They can absolutely be considered as a guarantor to that application.
One thing to highlight is that there are typically restrictions on age at the end of the mortgage term. That can be an issue when you’re trying to get the term at a length that makes the payments affordable for the main applicant.
That’s why it’s really important to speak to a mortgage broker who understands not only the lenders that will offer mortgages for guarantors, but also the ones that have more flexibility with retired guarantors. That relates both to accepting pension income and also extending the term as far as possible based on the guarantor’s age.
What happens if my guarantor dies?
It’s not something anybody wants to to think about, particularly as a guarantor typically has a close relationship to the mortgage applicant. But the reality is that mortgages can last for decades, and unfortunately, there is a chance that your guarantor might pass away during that term.
If that happens, there’s no hard and fast rule. It’s down to the lender and the individual circumstances. You might potentially need to get another guarantor for the mortgage, or
perhaps your financial situation has improved and you could afford to take on the mortgage under your own steam. You might be able to pay off a chunk of the mortgage.
I would really encourage anybody who’s thinking about being a guarantor to make sure that they have protection in place for the person you’re guaranteeing, and vice versa. Then, if the worst happens, that will provide the family with the funds they need to clear off the mortgage.
Do guarantors get credit checked?
Unfortunately for the guarantor, yes they do. Lenders assess the ability of the guarantor to pay the mortgage in the event of the main applicant being unable to. It links to your overall credit profile.
If an individual has missed the last six months’ mortgage payments, for example, that would be a concern to a new lender straightaway. Would they want to have that person on the application as a guarantor?
It’s important that the guarantor understands that as part of the process they will be credit checked, and lenders will factor their existing credit commitments into affordability. It’s all about whether or not the guarantor is in a financial position to support that application.
Can I stop being a mortgage guarantor?
Yes, you can, but only with the lender’s consent. Being a guarantor is a large financial commitment because you are essentially guaranteeing that mortgage. It’s really important that anybody who is potentially going to be a guarantor understands that first and foremost.
You can’t just decide to stop being a guarantor without getting consent from the lender to do so. To release you from your obligations as a guarantor, the loan would likely need to be affordable in the main applicant’s sole name.
Can I get a guarantor mortgage with bad credit?
It’s possible, but this is a very specialised area. If you think of all the lenders that are available, only a certain number look at guarantor mortgages, and then historical credit issues on top will make it quite challenging to find a mortgage.
What I would say, however, is that if the guarantor is in a really good position and has a strong credit profile but the applicant’s credit is less than perfect, certain lenders would look at that situation. Ultimately, if there are issues with the payment coming from the original applicant, they know the guarantor could step in and make those payments.
Again, we would need a specialist lender which means specialist rates. It’s very niche and there aren’t a huge amount of options available. You would really need to speak to a mortgage broker to assess the options and see what’s available.
How do I get a guaranteed mortgage?
Speak to a qualified mortgage broker and get the specialist that advice you need. Guarantor mortgages are not bread and butter for most mortgage brokers. They aren’t something they come across day in, day out.
You need to speak to somebody who understands how the process works and how to structure it for the most suitable outcome for you as the client. Ultimately, we’re in a strong position to do that because it’s something we’ve dealt with for a long period of time.
What else do we need to know about mortgages with a guarantor?
Whenever you’re looking at a very specific type of application like a guarantor mortgage, limited lenders will accept applications on that basis. It’s really important to speak to a mortgage broker to assess all the options.
If we’re not in a position to be able to support you with that application, it’s probably not possible to secure the funding that you want. But there will be other options in that space – such as Joint Borrower Sole Proprietor, which is very favourable and quite high profile with some major lenders at the moment. So there are options in this space.
Obviously it’s always a case-to-case basis, but in the right circumstances there are mortgages to support a First Time Buyer getting on the property ladder.
Another thing to add is that guarantors are usually only on the mortgage for a certain period of time – perhaps whilst a son or daughter is at university. Then, once that person is in a position to fund the mortgage independently, the guarantor can be removed.
As always, speak to a good mortgage broker and we’ll guide you through those options.
THE INFORMATION CONTAINED WITHIN WAS CORRECT AT THE TIME OF PUBLICATION BUT IS SUBJECT TO CHANGE
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.