nigel woollsey

Nigel Woollsey

Online Writer
Published: 10/12/2019

What is a guarantor mortgage?

A guarantor mortgage helps borrowers who don’t have a deposit or have a financial history that may not be accepted by a mortgage lender. This means you can borrow up to 100% of the property’s value as a family member or friend provides their savings or equity in a property as security for the mortgage. Those guaranteeing a mortgage agree that if the mortgage holder cannot make repayments they will do so in their place.

Who needs a guarantor mortgage?

Guarantor mortgages are designed to help those who either do not have a good enough credit score to obtain a mortgage on their own or lack the normal 5% minimum deposit.

While this can include people who have a poor credit history, it can also be applied to those who are too young to have built up a sufficient credit score – for example, parents may want to secure a guarantor mortgage for their child who is only just 18 or has never used credit before.

Guarantor mortgages might be suitable for:

  • Individuals with a bad credit history
  • Those with no or less than 5% deposit
  • People who have little or no credit history (through not having used any credit before)
  • Those who want to buy a more expensive property than they can afford or have a deposit for

What types of guarantor mortgages are available?

There are a range of guarantor mortgages that each operate in a different way. The best one for you will depend on the individual circumstances of yourself and your guarantor.

Can you still get 100% mortgages?

Yes, 100% mortgages are available, but these are only offered as part of a guarantor mortgage. Banks and building societies still require a form of security, and can only accept 100% mortgages when this is provided from a guarantor in the form of cash savings or property.

Who offers guarantor mortgages?

Provider

Product

Mortgage type

Barclays Mortgage

Springboard

Fixed

Bath Building Society

Parent Assist Mortgage

Discounted variable rate & fixed

Buckinghamshire Building Society

Family Assist

Discounted variable rate & fixed

Cumberland Building Society

Family Mortgages

Fixed

Family Building Society

Family Mortgage

Fixed

Halifax

FAMILY BOOST

Fixed

Loughborough Building Society

FAMILY DEPOSIT MORTGAGE

Discounted variable rate

Loughborough Building Society

Buy 4 University

Discounted variable rate

Mansfield Building Society

Family Assist

Discounted variable rate & fixed

Marsden Building Society

Family Stepped

Fixed

Progressive Building Society

Family Assist Mortgage

Discounted variable rate & fixed

Tipton & Coseley Building Society

Family Assist Mortgage

Discounted variable rate

Vernon Building Society

Family Assist Mortgage

Discounted variable rate

Guarantor mortgages using cash savings as security

This is where the guarantor puts up a specified amount of their savings as security for the mortgage. Typically, this is between 10% to 20% of the value of the property being purchased.

The savings are held by the provider until certain pre-approved conditions are met, such as a specific number of years having passed or until the amount of money owed has dropped below a certain level, such as 80% of the value of the mortgaged property.

Missing payments will result in the lender retaining the savings deposited for longer. If it comes to the property being repossessed, then the lender may also use the deposited savings to make up for any shortfall in the sale price of the home against the amount of money still owed on the mortgage.

Whether the savings earn interest depends on the type of guarantor mortgage being used. Some are a straight deposit, which is used as a security against the mortgage that pays interest.

Using equity in property as security for a guarantor mortgage

The guarantor will usually need to own the property outright as the lender will place a charge against the guarantor’s property. This means should the borrower default on their repayments, the guarantor’s home may be at risk.

Family offset mortgages can reduce your mortgage interest costs

This type of guarantor mortgage sees a family member place their cash savings into a savings account that is linked to your mortgage. The savings balance is deducted from your mortgage, reducing the amount of interest you pay.

The family member depositing the money will (as long as the mortgage is paid) get their money back eventually. However, usually they will not have earned any savings interest, and they may not be able to access their funds for a pre-agreed number of years or until the outstanding mortgage balance reaches a set of the property.

If the property is repossessed, the lender will sell the property to recover the value of the mortgage and, if this sold at an amount lower than the mortgage, they could recoup any difference from the guarantor’s savings. Providers offering family offset mortgages include Vernon Building Society and Family Building Society.

Family Link mortgage uses property to reduce amount borrowed

The Post Office has a Family Link mortgage that allows you to borrow 100% of the property’s value but. The guarantor provides 10% in the form of equity in their own property.

The guarantor must own the property outright and they remain liable for this 10% if you miss your mortgage repayments. The borrower remains responsible for the 90% LTV borrowed and the 10% secured by the guarantor’s property.

What are the risks of being a mortgage guarantor?

The guarantor risks losing their savings or may even have their own home repossessed if they have used their property’s equity to secure the guarantor mortgage.

Do you need a deposit for a guarantor mortgage?

One of the reasons for taking out a guarantor mortgage is because the borrower does not have a deposit in place. There are lenders who offer 100% LTV mortgages.

What happens if you can’t make the repayments on a guarantor mortgage?

  • Initially, the mortgage lender may give you more time to make your repayments and agree a repayment plan to get you back on track.
  • There may be fees as a result of late or no payment.
  • You could ask your guarantor to make the payments until your finances improve.

If you still remain in financial difficulty, then a lender might choose to:

  • Approach the guarantor to pay (if they haven’t been already).
  • Take money from the guarantor’s savings account (if this was used for the guarantor mortgage).
  • Extend the time the guarantor cannot withdraw their savings.
  • Repossess the property and, if this does not pay back the mortgage balance in full, use the guarantor’s savings or repossess their property held as security.

As you can see, failing to meet your guarantor mortgage repayments not only has serious ramifications for you, but also those acting as your guarantors.

Does the guarantor of my mortgage own part of my house?

  • Being named as guarantor does not mean that they own a portion of the property. The name on the deeds will be that of the borrower only.
  • In addition, being a guarantor does not mean that you have any right of access to the property the mortgage is secured against.

Pros and cons of guarantor mortgages

  • Enables people to get on the property ladder who might not otherwise be able to obtain a mortgage.
  • Allows family and friends to help fund a new home.
  • Parents can help more than one child into home ownership.
  • Where savings are used as security, they can earn interest (but not for offset mortgages).
  • Becoming more popular with a growing number of providers and products.
  • The guarantor is responsible for making repayments if the borrower fails to keep up with their obligations with guarantor mortgages.
  • Guarantors must accept that their own home/savings could be at risk if the borrower fails to keep up with repayments on a guarantor mortgage.

Moneyfacts tip

Moneyfacts tip nigel woollsey

Some guarantor or family offset mortgages can’t be used to buy new-build or self-build properties. Be sure that the mortgage product you have chosen is suitable for your intended property.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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