April 04, 2024
Fees Free Mortgage Team

What Are Guarantor Mortgages?

April 04, 2024 - Fees Free Mortgage Team

What Are Guarantor Mortgages?

Whether you’re a first-time buyer daunted by the mountain of saving for a hefty deposit, or you’re finding the lending criteria of traditional mortgages a barrier too high to climb, you’ll find a solution with someone who believes in your potential to own a home as much as you do. Enter guarantor mortgages.

But what are guarantor mortgages? How do they work, and who can benefit from them? At Fees Free Mortgages, we’ll answer your questions, whether you’re curious about how a guarantor mortgage could work for you, or if you’re considering supporting someone else.

How Do Guarantor Mortgages Work?

A guarantor mortgage involves someone you trust, usually a parent, family member, or close friend, who agrees to back your mortgage application. This isn’t about them lending you money directly. Instead, they promise to cover your mortgage payments if you’re ever unable to. It’s like having a safety net, allowing lenders to feel more confident in offering you a mortgage, even if your savings or credit history might not be as strong as required.

Who Can Get a Guarantor Mortgage?

You might be wondering if a guarantor mortgage could be your key to the front door. They’re a path many have taken to step into homeownership, especially when traditional mortgage routes seem a little out of reach.

Those with Smaller Deposits

Saving for a hefty deposit can feel like a distant goal. With a guarantor mortgage, you might only need a smaller deposit, or in some cases, none at all, as your guarantor’s financial backing provides the lender with the necessary security.

Limited Credit History

Building a comprehensive credit history takes time. If you’re young or have never had credit before, your guarantor can help assure lenders that you’re a safe bet.

Less-Than-Perfect Credit Score

Life happens, and sometimes your financial health takes a hit. In this case, a guarantor mortgage can offer you a second chance when looking to buy a home, despite past financial missteps.

Self-Employed 

If you’re self-employed, then scoring yourself a mortgage might be that little bit harder. As proving your income can be tricky, lenders might be cautious of you. But, a guarantor gives them reassurance about your ability to keep up with mortgage payments.

Who Can Be a Guarantor?

A guarantor is someone who commits to back your mortgage, stepping in to make payments if you’re unable to. It’s a role that’s all about trust and financial stability. But not just anyone can take on this responsibility. There are specific boxes they need to tick to be your mortgage guarantor.

Financial Stability

Your guarantor should have a strong financial background, like a healthy credit score and a stable income. Lenders look for guarantors who can comfortably afford to take on the potential financial obligation, without it overstretching their own finances.

Equity or Savings

Often, guarantors need to own their own property or have significant savings. This gives lenders peace of mind, knowing there’s something tangible backing the guarantor’s promise.

Age Matters

There’s usually an age limit for guarantors, typically requiring them to be under 75 at the end of the mortgage term. This ensures that they’re likely to remain financially stable throughout the duration of the mortgage.

A Close Relationship

While there’s no rule that your guarantor must be a relative, they often are. Parents, grandparents, or even siblings commonly take on this role. It needs to be someone who knows you well and is willing to make a commitment on your behalf.

Understanding and Willingness

Above all, your guarantor must fully understand what they’re signing up for and be willing to accept the responsibilities involved. This includes a thorough understanding of the potential impact on their own financial health and credit score.

What Are The Benefits of a Guarantor Mortgage?

When the financial climate is as unpredictable as the weather, having a guarantor by your side is like having an umbrella, offering protection and support as you step out. But what makes a guarantor mortgage so beneficial?

A Step Towards Homeownership

For many, saving for a large deposit is the biggest obstacle standing in the way between you and your homeownership dreams. A guarantor mortgage knocks these barriers down, sometimes allowing you to borrow up to 100% of the property’s value. This means you could get onto the property ladder sooner than you might think.

Access to Better Mortgage Rates

With a guarantor backing your case, lenders reward your additional security with more competitive interest rates. Over time, this could mean significant savings on your mortgage repayments, bringing your homeownership dreams within grasp. 

Increased Borrowing Power

Before you tighten the purse strings on your budget, you might find that the backing of a guarantor allows you to borrow more than you would on your own. This can be particularly helpful if you’re looking to buy in an area where the property prices are high but your personal borrowing isn’t quite what you need to secure your ideal home.

Flexibility for Those with Bad Credit

If your credit history isn’t spotless, a guarantor mortgage can help to buff out the flaws in your application. They provide a way for those with less-than-perfect credit scores to prove their reliability as borrowers, giving you a chance to prove your creditworthiness through consistent mortgage repayments.

Support for Self-Employed and Contract Workers

Being self-employed or working on a contract basis can stand in the way between achieving your homeownership dreams. To move you closer to making those dreams a reality, having a guarantor can give your lender the reassurance they need to approve your mortgage application.

What Are The Risks of a Guarantor Mortgage?

For those who might find the route to homeownership a bit steep, a guarantor mortgage can help to lift you up. However, like any financial decision, it comes with its considerations. Before you sign on the dotted line, it’s important to understand any potential risks involved for borrowers and guarantors. 

Increased Responsibility

While a guarantor mortgage can help you secure a home loan, it also means that you’re promising that someone else will cover your payments if you can’t. This can add a layer of responsibility, knowing that your financial decisions could directly impact someone you care about.

Relationship Strain

Money is a delicate subject, and it’s one that can test even the strongest of bonds. If financial problems rear their heads, it could affect your relationship with your guarantor. So, while it’s important to remain open and honest, it’s also crucial to consider this dynamic.

Potential for Financial Difficulty

Life isn’t always stable, and sometimes when your circumstances change, your payments change with it. In this case, not only do you have to consider the risk it has on your home, but you also have to take into account the financial wellbeing of your guarantor. It’s a shared financial journey, with shared risks.

Financial Liability

For your guarantor, taking on this role means being called upon to make mortgage payments on your behalf. Whether financial rain or shine, they’ll need to be prepared to pick up the slack if your financial situation changes unexpectedly.

Credit Impact

If you miss your mortgage payments, then your guarantor’s credit score could suffer the consequences. This responsibility could also limit your guarantor’s borrowing capacity, as lenders will see the guaranteed loan as a potential liability.

Secured Guarantees

Being a guarantor means putting more than just your finances on the line. In some cases, your guarantor’s own home may be used as security for the mortgage. This means if you default on payments, your guarantor’s property could be at risk.

How to Apply for a Guarantor Mortgage

Whether you’re taking the first steps towards purchasing your first home or finding a way to overcome financial hurdles, applying for a guarantor mortgage opens up doors that make the impossible within reach.

Assess Your Readiness

Before jumping headfirst into your application, take a moment to assess your financial health and readiness. Are your finances in order? Do you have a guarantor in mind? By answering these questions, you’ll better understand your current position.

Find Your Guarantor

Choosing the right guarantor isn’t a decision to take lightly. The person for the job should have a strong credit history, stable income, and their own property. Above all else, they shouldn’t be a stranger to you, they should be someone you trust and who understands the responsibilities.

Gather Your Documents

You and your guarantor should get together, get your heads down, and gather your necessary financial documents. This will include your IDs, proof of income, bank statements, and any other paperwork your lender needs to assess your application thoroughly.

Get Expert Advice

If you’re looking for a lending hand to guide you and your guarantor to a successful application, then look no further than Fees Free Mortgages. Our team of experts can provide invaluable advice, helping you understand the finer details of guarantor mortgages. We’ll work with you to review your financial situation, discuss potential lenders, and ensure both you and your guarantor are fully informed.

Choose the Right Lender

Not all lenders are equal, and some might not even offer a guarantor mortgage. For those that do, the terms may vary between lenders. A mortgage broker, like Fees Free Mortgages, will help you compare options to find a lender whose products and criteria match your needs.

Complete the Application

Once you’ve found your perfect match, it’s time to complete your application. Your mortgage broker will guide you through this process, ensuring all your information is accurate and presented in the best light.

Valuation and Underwriting

Once your application leaves your hands, your lender will conduct a property valuation and underwriting process to assess the risk. This step is largely out of your hands, but by keeping on top of any additional information requests can help keep things moving smoothly.

Approval and Offer

If everything goes well, you’ll get the green light on your mortgage offer. After this, you’ll receive a document that outlines the terms of your mortgage. It’s important to review it carefully, ideally with your advisor, to ensure you understand and agree with all the terms.

Legal Process

After you’ve given the offer your seal of approval, legal processes will finalise your mortgage. This means conveyancing and the exchange of contracts. A broker, like Fees Free Mortgages, can help connect you with trusted solicitors to ensure this step is handled efficiently.

Completion

Once the legal process is complete, you’re on your way to homeownership. Here, the funds will be released, and it’s time to take a deep breath and celebrate!

Guarantor Mortgages With Fees Free Mortgages

For those of you who find traditional mortgage routes closed to them, a guarantor mortgage is more than an alternative finance path, it’s a lifeline. Guarantor mortgages offer a viable route to purchasing your own home, even when obstacles like saving for a large deposit or overcoming credit challenges stand in your way. 

At Fees Free Mortgages, we’re proud to stand with you on this journey. Understanding mortgages, especially with the added factor of a guarantor, requires careful consideration, trusted advice, and a partner who understands your background from every perspective. At Fees Free Mortgages, we specialise in creating personalised mortgage solutions that fit your unique situation and financial goals. Our team is ready to answer your questions, address your concerns, and guide you through every step of the application process.

Don’t let the complexities hold you back. Whether you’re contemplating how a guarantor mortgage could work for you, you’re ready to be the support for someone else’s homeownership dreams, or you’re just looking for general mortgage advice, reach out to us


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