Using a guarantor can be an opportunity for you to get a mortgage approved when otherwise it would have been refused.

There is much confusion in the public domain in regard to guarantors for mortgages so, below are a few areas to highlight that will hopefully look to clarify a few of these for you.

What is guarantor mortgage

A guarantor mortgage is where someone is willing to provide a guarantee to your mortgage provider that the payment will be maintained.  Therefore, the lender has the reassurances that someone else will take the responsibility of making your mortgage payments should you not be in a position to do so personally.

Who can be a mortgage guarantor

Almost anyone can be a mortgage guarantor however lenders typically look for any of the following.

Here is a list a people that can be a guarantor:

• Direct family member. Depending on the lender this could be –
  • Parent or Guardian
  • Sibling
  • Grandparent
  • Cousin
  • Aunt or Uncle
  • Any close blood relative

• Other options. Depending on the lender this could be –
  • Step-parent
  • Adoptive parent
  • Spouse (certain criteria will apply)
  • Distant relatives
  • Friends
  • Colleagues

In essence a lender may consider any form of relationship for a guarantor as long as they are happy with the situation now and for the long term, depending on the anticipated term of the guarantee.

What makes a good mortgage guarantor

If you require a guarantor and find yourself in the fortunate position of having someone who is willing to do this for you, you will need to have an idea of some of the basics that lenders look for to see if their situation fits the bill.  These are some of the main boxes that will need to be ticked and some misconceptions that are worth knowing:

Income – As a guarantor is giving the back up of making any mortgage payments should you not be able to, they must be able to demonstrate their ability to afford this.  As such income is the most key area that lenders look for.

Assets – As mentioned above, affordability to meet the mortgage payments throughout the term is what a lender is looking for when assessing a guarantor.  Therefore, whilst many lenders will still look for a guarantor to be a homeowner, albeit this is not a necessity, the amount of assets including the value of their own home or other properties they may have is irrelevant.   This also includes cash such as savings or other investments.  This is one of the biggest misconceptions with acceptable guarantors who may be “asset rich” but can not demonstrate suitable affordability in regard to their income.

Age – As a guarantor is looked upon to provide the reassurances for the full mortgage term, age plays a significant part in this.  For example, if you are a first time buyer age 25 and looking for a 35 year mortgage it is highly unlikely that a lender will accept a guarantor who is already 55 years old whose income is from their own employment.  Even if you have plans to remove the guarantor in a short space of time a lender can not be given any promises of such and needs to work on the worst case scenario that the full mortgage term needs to be guaranteed.

Credit history – As the guarantor is offering reassurances to the lender then a good credit rating for the proposed guarantor is a must.  Lenders may take a view on isolated cases or those that have specific circumstances around the adverse credit events however, these would have to be assessed on their individual merits.

Who offers guarantor mortgages

The number of lenders who accept guarantors in today’s market has decreased quite substantially.  Indeed, due to the perceived complexity of guarantor mortgages, lenders have introduced other schemes that are now more widely acceptable and are perhaps regarded as the new norm where potential guarantors are concerned.

These new alternatives are:

Joint borrower sole proprietor

A joint borrower sole proprietor mortgage or a JBSP mortgage works in fairly much the same way as a standard guarantor mortgage. The main difference is that the “guarantor” is an actual named person on the mortgage application but is not named as a legal owner of the property.  This gives greater reassurances to the lender as each and every borrower takes equal responsibility known as jointly and severally responsible ie every borrower is responsible for the debt in the same way and not simply as a back up to the lender.

First start mortgage

First start mortgages (or sometimes referred to by other names) were initially designed to assist first time buyers however, they have developed over time and are now available to any potential mortgage customer (subject to criteria).  These are designed to assist borrowers that do not have the sufficient deposit but can still demonstrate affordability for the loan requested.

In situations such as this it’s not uncommon for friends or family to help out with a non-repayable gifted deposit.  However, for those wanting to assist with the deposit they may not have the capital to simply give this as a gift.  In these circumstances a First Start Mortgage could be the answer.  Rather than provide the funds as a gift, the helper agrees to put a certain level of savings into a savings account with the mortgage provider.  This remains in the helper’s name and interest is usually still paid in return.  The agreement is that the funds are locked in this account, usually for a minimum of 3 years.  Should the mortgage be maintained and fully up to date after the designated period the helper is free to withdraw the funds and their obligation as security expires.

Mortgage guarantor for bad credit

If you have a history of bad credit it is unlikely that a guarantor will be the solution to your mortgage approval.  Guarantors are looked upon to fill the void where affordability is not demonstrated by the main applicant(s) and not simply to offer reassurances where they have not maintained aspects of credit in the past.

A guarantor mortgage broker

You don’t have to use a mortgage broker who specifically deals with guarantor mortgages, but a good advisor will be familiar with all the different schemes and lenders criteria.  Firstly, they can establish if a helper or guarantor is even required and if so to consider all the possible options for you.  Do bear in mind that even if a guarantor or alternative scheme is the best route forward for you the availability on the market will likely give you a much smaller amount of choice. Contact us today for help obtaining a guarantor mortgage.

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