13 Sep 2018
What are Guarantor Mortgages?
For those trying to navigate the ever-changing realm of mortgages, understanding all the different mortgage types on offer can make your head spin. Guarantor mortgages, Standard Variable Rate mortgages, retirement mortgages, interest-only mortgages – there’s so many out there that we couldn’t possibly list all of them. Well, we could but you’d be bored, we be bored, and your eyes would cross with the amount of times you’d have to read ‘mortgages’.
So, in order to make this a little easier (for all of us), we’ll focus on one particular mortgage type, in this post. This week, the MO team are going to tell you all about Guarantor Mortgages. Yes, we’ve put our heads together, to come up with a no-nonsense, explanatory guide to guarantor mortgages. What they are, how they work and why they’re a good option for certain people etc.
If you’re looking to learn all you need to know about guarantor mortgages, then keep yourself on this page – let’s get started.
What are guarantor mortgages?
Put simply, guarantor mortgages are mortgages with a guarantor… Okay, so that’s not overly helpful, but bear with us. A guarantor is someone who can ‘back’ your mortgage application and support you. It’s a way of lenders lending mortgages to you when you may not meet their financial criteria. This may be because your credit isn’t great, or your income isn’t high enough (we’ll go into more detail below), but by having a guarantor with your mortgage application, it allows you to effectively piggy back off their good ‘reputation’. Guarantor mortgages are usually for those that can tick one or more of these off:
- Your credit score isn’t that good
- You’re a First Time buyer
- You have a low income
- You want a mortgage for a house which is outside of what lenders will allow you to borrow
- You don’t have a deposit or don’t have enough deposit
If you’ve ‘ticked’ any of what’s been listed above, a Guarantor Mortgage may be suitable for you. But, how do they work?
How do guarantor mortgages work?
So, you’ve thought ‘Okay, maybe a guarantor mortgage is the one for me’. And, whilst that’s great and all, you’ll need to understand how they work.
You and your guarantor will approach a guarantor mortgage provider, and say ‘hey, can I have one mortgage please’. And, hopefully, they’ll say ‘sure thing!’ (it may not be as easy as this…). From here, you and your guarantor will have to sign the relevant paperwork. Your guarantor must be happy to sign a legal document, agreeing that should you be unable to make any repayments on your mortgage, they will cover them for you. It’s an assurance for lenders that they’re going to get their money back.
As with all mortgages, your home will be up for collateral against the loan. But, with guarantor mortgages, your guarantor may also need to pay forward a sum of money (specified by the lender) into an account which is ‘held’ by the lender. Once you (the borrower), has paid off an agreed amount, your guarantor’s funds will be returned by the lender. Think of it as a deposit for the house, but one your guarantor pays and gets back. This ‘deposit’ is security for the lender, which means even if your credit score isn’t great or you don’t have the full deposit amount required, you’ll be able to secure yourself a mortgage.
Guarantor mortgages are great, as long as you continually make payments on them (as you should with all mortgages). But, not only is your own home at risk of repossession, should you be unable to pay, but your guarantor’s home could be too. If your home is repossessed and sold by the lender, and your mortgage debt is not paid off in full, then your guarantor’s home may be repossessed to cover the remaining amount. Some lenders may 'tack on' charges if payments are missed or they can hold on to your guarantor’s lump sum of cash for longer. So, in order to keep yourself in your guarantor’s and lender’s good books, make sure you’re not missing mortgage repayments!
Obviously not anyone can be your guarantor (your mate Bob isn’t reliable enough, sorry). Some lenders will ask that you use a parent, grandparent or step-parent to be your guarantor. However, the general consensus amongst lenders is that your guarantor must fit the following criteria:
- Owning their own home
- Having a ‘high enough’ income
- Have a good credit history
- Have received legal advice (before signing to be a guarantor)
If you have someone that fits all of these criteria and is happy to be your guarantor for your mortgage, then congrats! You’re ready to find yourself a guarantor mortgage.
Finding a mortgage
Not to blow our own trumpets or anything, but MO compares 1000s of mortgage deals from 100s of different lenders. So, you might be able to find yourself a great deal on a guarantor mortgage.
Start your mortgage search with Mortgages.Online.