A guarantor mortgage may be just what you need if you are struggling to get onto the property ladder. If you have had previous bad credit, less than 5% for a deposit or don’t have the income needed for the size mortgage you need a willing guarantor could be your solution to getting the mortgage you require.
The reason a guarantor may be able to help you get a mortgage is due to the way a lender assesses a mortgage application. Lenders assess mortgages based on many factors but one of the biggest factors is the level of risk. If you have a low deposit or previous credit issues then the lender will likely deem your risk level as high and this can cause an application to be declined. A guarantor will help to reduce the risk of borrowing significantly. The guarantor will basically guarantee they will pay the mortgage payments if the borrower is unable to, this reduces the risk and can increase the amount of deals available to first time buyers.
Being a guarantor should not be a decision taken lightly, it is a big commitment for both the borrower and the guarantor. A mortgage is one of the biggest financial commitments you can make and it should be considered carefully especially if you are planning on having a guarantor.
What is a guarantor Mortgage?
Guarantor mortgages are mortgages that are guaranteed by a parent, family member or friend. If the borrower where to miss a mortgage payment then the guarantor will be legally obligated to repay the mortgage.
A lender will typically secure the mortgage against the savings or property that the guarantor owns. This means that in the event that the borrower defaults on the mortgage then the banks can use the guarantors home or savings as collateral to ensure they get the debt repaid.
A guarantors home may be at risk, this is why it is not a decision to be made lightly by the borrower or the guarantor themselves. There are several different ways lenders use guarantor mortgages. It could be that the guarantor must guarantee the whole mortgage or a percentage of it. For more details advice speak to one of our expert mortgage brokers today.
Who can be my guarantor?
Lenders will usually require a guarantor to be a family member, although there are one or two that will accept friends as a guarantor. Lenders will also usually require the guarantor to be a home owner and have a good level of equity in their property.
Guarantors will also need to be assessed for affordability. Lenders will want to ensure that the guarantor will be able to pay their own mortgage payments as well as the mortgage payments the guaranteed should something happen.
If the guarantor is not a home owner they may still be able to be your guarantor but they will need sufficient savings. The lender may require that the savings needed to secure the mortgage be put in an account at their bank. This may be for a certain amount of time. For example it may be that the lender will require a 20% deposit to be put in a savings account with them as collateral for 3 years. After this period your circumstances may have changed or you will have built sufficient equity in the property to remortgage and no longer need a guarantor.
Will my guarantor own my property?
A guarantor would not own the property or any share of the property. The guarantor is strictly agreeing with the mortgage lender to stop in if you can no longer make payments to the lender. The guarantor will not be on the title deeds from the land registry.
A guarantor will need to have trust and faith that the borrower has the means and financial planning to repay the debt. This is why lenders prefer a guarantor to be a family member who has a long standing history and vested interest in the borrower.
100% Guarantor Mortgage
100% guarantor mortgages are one of the main advantages of using a guarantor. If you have little to no deposit then there are lenders out there that are offering 100% deals for applicants with a guarantor.
Lenders typically offer the best deals to applicant’s that have 20-25% deposit available. Having a guarantor will help to reduce the risk and increase the number of good deals you can apply for. Overall the deal you will be able to get will come down to your affordability assessment and also the security hat the guarantor can provide, the higher the security the lower the risk for the lender.
Low income guarantor mortgages
If you are on a low income but have found your dream property a guarantor may be just what you need to make your dreams come true. Having a low income can force lenders to offer a lower amount or even decline an application. A guarantor’s income may be used along with your income to maximise the amount of borrowing you can have. This will usually be on a case by case basis and also based on affordability checks on both the applicant and the guarantor.
An example, a lender may offer you a mortgage for £120,000 without a guarantor but may approve a mortgage of £160,000 with a guarantor.
When can I remove my guarantor?
It is always possible to have a guarantor removed from a mortgage. You may have improved circumstances or inheritance which makes the guarantor unnecessary. The length of time a guarantor will be needed is subject to the lenders terms. The length of time will be set out before the mortgage is approved.
The terms a lender will use can either be based on a set number of years or until a certain percentage of the mortgage has been paid off. If the borrower has any missed payments then the lender will have the right to extend the length of time the guarantor is needed.
Can I get a guarantor mortgage with bad credit?
If you have bad credit it can make it more difficult to secure a mortgage with a high street lender. It is not impossible but it can make it more difficult. High street lenders in particular are geared towards customers with clean credit histories and straight forward income structures. If you fall out of the criteria it can make it more difficulty to be accepted.
There are specialist lenders that cater for bad credit but the rate may not be as competitive. Having a guarantor may make your more eligible for high street lender mortgage deals.
If you have bad credit it is best to speak with a specialist bad credit mortgage broker that will be able to assess your circumstances and find the the best route for you to take.
Get Expert Advice
For more information or to find out the best guarantor mortgage deals you are eligible for it is advisable to speak with a specialist broker. Get in touch today by filling in one of our call me back forms or give us a call on 0161 209 6700