Navigating the mortgage landscape can be a challenging and sometimes perplexing experience, especially for first-time homebuyers. The recent changes in the housing market, coupled with increasing property prices, have made it difficult for many people to secure a mortgage. In such situations, having a guarantor can make a difference. But can you get a mortgage with a guarantor in the UK? The answer is yes, and this article explores the intricacies of guarantor mortgages and their benefits.
What is a Guarantor Mortgage?
A guarantor mortgage is a type of mortgage where a third party, usually a close relative or friend, agrees to take responsibility for the borrower’s mortgage payments if the borrower is unable to make them. The guarantor doesn’t own the property, but if the borrower doesn’t pay, the guarantor has to cover any missed payments or even pay off the whole mortgage.
Guarantor mortgages are designed to help individuals with lower incomes, smaller deposits, or limited credit histories to get on the property ladder. By having someone with a stable income and good credit score vouch for them, borrowers can improve their chances of securing a mortgage and often obtain more favourable terms.
Eligibility Criteria for Guarantor Mortgages
The eligibility criteria for guarantor mortgages vary between lenders, but there are some common requirements that apply across the board:
The Guarantor: The guarantor must have a strong credit history, a stable income, and often must own property in the UK. They should also be willing and able to cover the borrower’s mortgage payments if needed. Typically, close relatives like parents, grandparents, or siblings are preferred as guarantors, but some lenders may also accept close friends.
The Borrower: Borrowers should have a regular income, though it may be lower than the lender’s standard requirement. They must also demonstrate their ability to cover the mortgage payments and associated costs like property maintenance, utility bills, and council tax.
Deposit: Although guarantor mortgages can potentially enable borrowers to secure a mortgage with a smaller deposit, most lenders will still require at least a 5% deposit of the property’s value.
Affordability: Both the borrower and guarantor must pass the lender’s affordability checks. This process evaluates their incomes, outgoings, and financial commitments to ensure they can handle the mortgage payments.
Benefits of Guarantor Mortgages
Access to Mortgage: A guarantor mortgage can help borrowers who might not qualify for a traditional mortgage due to low income, poor credit history, or small deposits.
Higher Loan Amounts: With a guarantor, borrowers may be able to access higher loan amounts than they would be able to obtain independently, allowing them to purchase a more suitable property.
Better Interest Rates: Guarantor mortgages can sometimes come with more favourable interest rates, as the added security of a guarantor lowers the lender’s risk.
Flexibility: Some guarantor mortgages allow the guarantor to be released from the agreement after a certain period or when specific conditions are met, such as the borrower’s loan-to-value ratio falling below a certain threshold.
Potential Risks and Disadvantages
Guarantor’s financial risk: The guarantor is legally responsible for the mortgage repayments if the borrower defaults, which could put their own finances and credit rating at risk.
Impact on guarantor’s borrowing capacity: Being a guarantor can affect the guarantor’s ability to secure loans or mortgages in the future, as lenders will take their existing financial commitments into account.
Difficulty removing the guarantor: If the borrower’s financial circumstances improve, they may wish to remove the guarantor from the mortgage agreement. However, this process can be complicated and may require the borrower to refinance the mortgage or prove their ability to meet the repayments independently.
A guarantor mortgage can be a viable solution for borrowers who face obstacles in securing a traditional mortgage in the UK. By enlisting the help of a trusted individual with a strong financial background, borrowers can increase their chances of obtaining a mortgage and getting onto the property ladder.
However, it’s crucial for both borrowers and guarantors to fully understand their responsibilities and the potential risks involved before entering into a guarantor mortgage agreement. Consulting with a professional mortgage broker or financial advisor is highly recommended to ensure the right mortgage product is chosen, and both parties are well-informed.
Get a free initial consultation from a mortgage broker.