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Find out everything you need to know about guarantor mortgages, from how they work, who can get them, the benefits and the pitfalls.
When you take out a guarantor mortgage, someone – typically a parent – takes on some of the risk of the mortgage by acting as a guarantor. This usually involves them offering their savings or their home as security against the loan and committing to making the mortgage payments if the borrower defaults.
One condition of guarantor mortgages is that the guarantor won’t own a share of the house and won’t be named on the title deeds.
The main advantage of taking out a guarantor mortgage usually means the borrower can take out a larger mortgage than if they apply for a traditional mortgage on their own. And some guarantor mortgages will let you take out a mortgage with no deposit, that is borrow 100% of the property’s value. This means you won’t need to save up for a deposit.
However, there are risks for the guarantor to consider. This is because if the borrower is unable to make the repayments, there could be serious consequences. These could include the guarantor losing their savings or their home, depending on which they used as security against the mortgage.
Guarantor mortgages could be a good option for a range of circumstances including:
Lenders that offer guarantor mortgages include Newbury Building Society, Loughborough Building Society and Tipton & Coseley Building Society. And while they may not call their products guarantor mortgages, Halifax offer a Family Boost mortgage and Barclays offers a Springboard Family Mortgage that operate in a similar way. See below for more information on both.
For the most up to date information on which lenders offer guarantor mortgages, it’s a good idea to speak to a mortgage broker. They’ll also have expert knowledge on different lenders’ lending criteria so they’ll be able to advise you on which lender is most likely to accept you – and recommend the best deal for you. You can get fee-free advice from our partners at mortgage brokers L&C and start the process online now or over the phone.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
Guarantor mortgages can be particularly appealing to first time buyers. With the average deposit first time buyers put down in 2021 just shy of £59,000, according to Halifax, many have struggled to get on the property ladder. So, many parents who want to help their child buy their first home are turning to guarantor mortgages.
Do you want to help your child buy a home? It’s important to seek mortgage advice. Speak to our partners at award-winning mortgage brokers L&C. You’ll get fee-free expert advice.
Guarantor mortgages may come with slightly different names and have different eligibility criteria. But there are two main types:
Some guarantor mortgages allow you to use savings as security. With these mortgages, the guarantor puts cash into a special savings account that is linked to the mortgage. This is typically 5%-20% of the property’s value. The guarantor will agree for the money to be held for a period of time or until the amount you owe falls below a certain threshold. The guarantor can earn interest on the money deposited. However, it’s typically at a lower rate than that they may be able to get elsewhere.
However, if the borrower misses any mortgage payments, the lender may keep the guarantor’s money for longer. And if the lender has to repossess the property and sell it and if they get less than is owed on the mortgage, they may take the difference from the guarantor’s savings.
The Barclays Family Springboard Mortgage doesn’t call itself a guarantor mortgage, and specifies that ‘Helpers’ aren’t guarantors, but it works along these lines. The buyer can put down as little as 0% deposit. And the Helper puts down 10% of the cost of the property in a linked savings account for 5 years. Providing mortgage payments are kept up this will be returned to the Helper with interest after five years.
While the Halifax Family Boost Mortgage may not be called a guarantor mortgage on its website, it also operates in a similar way. No borrower deposit is required. Instead, a family member puts 10% of the property purchase price into a 3 year fixed term savings account. This will be returned with interest after the 3 year period is up, as long as mortgage payments are up to date.
With these guarantor mortgages, a legal charge is placed against the guarantor’s property. For example, a lender may ask to secure 20% of the amount you want to borrow against your guarantor’s property. The guarantor would typically need to have a substantial amount of equity in their home or own it outright. The charge will typically remain on the guarantor’s property until a certain percentage of the new mortgage has been paid off.
It may be a useful option if you don’t have savings you can use to help your child. However, the risks are potentially huge. This is because if the borrower defaults and the lender repossess the property and sells it for less than the outstanding mortgage balance, the guarantor could face having their own home repossessed.
With buy-to-let mortgages, you buy a property planning to let it out. The amount you borrow is based on how much rent the property can generate compared to the cost of the mortgage. Lenders will typically want your expected rental income to meet at least 125% of the monthly interest payments. They may also require you to have a minimum salary, typically £20,000-£25,000. And the minimum deposit is generally 20%-25% of the property price.
While the cheapest deals typically need a deposit of 40%. So, if you want to invest in a buy-to-let but you don’t meet this criteria – and you have a family member willing to be your guarantor, it may seem like an appealing prospect. However, guarantor buy-to-let mortgages are much less common than standard guarantor mortgages. So, it’s a good idea to speak to a broker to talk through your options.
Find out more in our guide Buy-to-Let Mortgages Explained
People often ask parents or older relatives to be their guarantor. This is usually because they have a larger income and a good credit history.
In order to be a guarantor, you’ll generally need to have:
When you agree to be a guarantor on a mortgage, there are serious risks to consider carefully before proceeding. If the person you’re acting as guarantor for can’t make their mortgage payments, you may be asked by the lender to pay. Or the lender may take the money from the savings account associated with the mortgage, if you used your savings as security against the mortgage. And they may extend the time you cannot withdraw your savings for. The lender could also repossess and sell the property. And if this doesn’t pay back the mortgage balance in full, they may repossess the guarantor’s property, if it was used to guarantee the mortgage.
Whenever it comes to taking out a mortgage, it’s always a good idea to see how much you can borrow. Try our handy free tool to find out how much you can borrow. And if you’re considering a guarantor mortgage, but you’re not sure which deals are available, speak to our partners at award-winning mortgage brokers L&C. They offer fee-free advice and can talk you through the guarantor mortgage options available to you and recommend the best deal based on your circumstances.
As part of their checks when deciding on whether or not to lend, lenders will check a guarantor’s credit history. If the guarantor has a good credit history, this will increase the chance of the mortgage being approved.
Having a guarantor may mean you can take out a larger mortgage than if you apply for a traditional mortgage on your own. This can happen even if you have a small deposit, or no deposit at all if you’re taking out a 100% LTV guarantor mortgage. This is because the guarantor’s savings or home are used as security against the loan.
However, bear in mind that lenders will still want to see proof that you’ll both be able to afford the monthly repayments. So, it’s not a case that you’ll simply be able to borrow what your guarantor could borrow if they were applying for a traditional mortgage of their own.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
This will depend on the lender; some lenders offer guarantor mortgages with a 100% LTV, which means providing you and your guarantor meet the lender’s criteria, you may not need a deposit at all. However, some lenders will require a deposit. Again, it’s wise to get expert mortgage advice so you’re fully informed on your options. You can read more about how to get a mortgage with no deposit in our guide. See generally how much you need for a deposit when buying a house.
Mixing family and money isn’t always something people want to entertain as they worry about the strain they may put on important relationships in their lives. So what are the alternatives to guarantor mortgages? The good news is there are quite a few different ways to access help as a first time buyer. We compiled these in a guide What Will Replace Help to Buy?
Other alternatives include:
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
With these mortgages, the person who is buying the home applies for a mortgage as normal and secures the mortgage. Then, if the parent has savings they would like to use to help their child, they can put these in a linked account and this will reduce the amount of interest the child pays on the mortgage. So it won’t help the child get a mortgage, but it will make their mortgage payments cheaper.
For more information read our guide on off-set mortgages
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
As a guarantor you won’t necessarily have to remain on the mortgage for the whole term. If the borrower’s financial circumstances improve, or if they have paid off a certain amount of their mortgage, the lender may agree to change the mortgage’s terms.
If your guarantor dies, what happens next will depend on your lender. Some will require a new guarantor. While others will allow you to pay off some of your mortgage balance with your guarantor’s estate. It’s important to check your lender’s policy on this before you make your mortgage application.
A guarantor is a person – often a parent or older relative – who helps a child buy their own home by pledging to cover mortgage payments. A guarantor will either have to use their own savings – or their own house – as security. Crucially, a guarantor needs to be someone with a decent income and a good credit history, as the lender will want to be sure that individual can manage their finances well.
They will co-sign on their child’s mortgage and be responsible for the monthly repayments alongside them. If the person being helped misses a payment, the guarantor will need to step in.
Yes, if you’re a first time buyer struggling to amass a sizeable deposit, or if you have poor credit, a guarantor mortgage can seem like an appealing option. However, taking on a guarantor mortgage is a big commitment, and there are serious implications to think about.
As a guarantor, you need to go in with your eyes open. If the child – or grandchild – defaults on their repayments, your home could be on the line, or the lender could raid your savings to make good its losses. Other options should always be considered before going down this route, such as first time buyer mortgages, gifted deposits and a range of schemes to help first time buyers.
No. A guarantor mortgage allows parents – or another family member – to provide collateral on the loan, essentially making the first time buyer a less risky prospect.
It’s also possible to find lenders who will offer a guarantor mortgage at 100% loan-to-value (LTV), meaning no deposit may be required. The key will be ensuring that you meet the lender’s criteria. A guarantor should always take legal advice to ensure they are fully aware of the risks they are taking.
With a guarantor helping you, you may be able to get a bigger mortgage than you would have been able to had you applied for a traditional mortgage on your own.
This is because the guarantor’s savings or property are used as security against the loan.
But lenders will want to see proof that you can both afford the monthly repayments. They will want to be sure the guarantor is capable of making repayments if you can’t.
Also note that you won’t be able to borrow the same amount that your guarantor could get if they were applying for a traditional mortgage of their own.
If you want to use one of these mortgages to get onto the property ladder, you will first need to enlist a family member – or possibly a friend – willing to be a guarantor. You will then need to find a lender willing to lend to you. A fee-free mortgage broker will search the market for you, talk you through the guarantor mortgage options and recommend the best deal based on your circumstances.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ, authorised and regulated by the Financial Conduct Authority (FRN: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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