November 25, 2020
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Yes. Many lenders are offering guarantor options. If you’re after a high LTV option, your best bet may be a smaller lender such as a building society as mainstream banks currently have some products unavailable.
For example, depending on where you or your parents live, you could get a 95% guarantor backed mortgage for at an initial rate of 3.39% with a building society.
It's a mortgage where a parent or close family member guarantees they pay the mortgage if you can't – either a missed payment or the shortfall during a repossession. This removes some of the risk for the lender, allowing you to get a mortgage if you aren't eligible for a more mainstream deal or want to borrow more than your affordability alone allows.
You'll find they usually have a higher rate of interest than mainstream mortgages.
Every lender is different and each lender could have more than one option for you, but generally guarantor mortgages fall into the following types:
Here, your guarantor will put some cash – normally around 5%-20% of the property price – in a savings account with your lender. They'll still earn a bit of interest on it, but won't be able to withdraw it for a set amount of time, or until you have paid off a certain amount of the mortgage debt.
As you may have guessed, these guarantor mortgages require your parent's property to be used as loan security – and that means, they either need to have paid off their mortgage completely or a substantial part of it.
With these your guarantor doesn’t provide an initial source of security, but instead guarantees contribution to your payments on a monthly basis. It’s likely that they’ll have their affordability assessed as part of your application.
With guarantor mortgages should you run into difficulty and the guarantor needs to step in, they could lose a large sum of money – or even their home if they secured it.
For example, if your home was sold during a repossession for £150,000 but you still owed the lender £175,000, the £25,000 difference could be deducted from your guarantor's savings or property sale.
It's why most people try to remortgage away from a guarantor deal as soon as they can – like when they’ve built up enough equity in their property or have improved their overall affordability.
They can be useful if you'll struggle to get accepted for a more mainstream mortgage, particularly if you have:
It's always worth getting expert advice from a mortgage advisor like Mojo if you're thinking about guarantor options.
Yes. Most lenders need your guarantor to be a close family member. Your guarantor will also need to have a good credit history and be able to confirm that they have received legal advice. Of course, your parents will need to be able to provide security in the form of savings, property or guaranteed income support.
Note, with most guarantor mortgages your parents can be retired, as most products don’t require the lender to assess their income, just the security they provide.
However, guarantor mortgages that allow your guarantor to provide monthly support will mean that parental affordability and their income will be assessed.
This changes from lender to lender and you should ask your adviser about each deal you're looking at. You may find that some lenders will require you to get a new guarantor, others allow you to use any proceeds you get from the guarantor’s estate to pay off the mortgage, hopefully negating the need for a new guarantor.
Yes, although they are less common:
These are little known options, but they allow a parent and child to buy a property together. It's different to a guarantor mortgage as both the parent and child will be named on the mortgage and the property deeds.
It's a useful option if you want your parents' income and savings to boost your mortgage changes.
Watch out for Stamp Duty and its national equivalents. As it'll be your parent's second property, they could pay the 3-4% surcharge on the property price, which could run into thousands.
Unlike a joint mortgage, these deals allow both parent and child to be named on (and assessed for) the mortgage, but only you, as the child, will be named on the property deeds. If you can manage to secure one of these deals it means that your parents won't need to pay a Stamp Duty surcharge.
One of the main issues with JBSP mortgages is that many lenders don't accept older parents, preferring you take a guarantor option instead.
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