For many individuals in the UK, especially first-time buyers and those with limited credit history or lower incomes, securing a standard mortgage can be challenging. A guarantor mortgage offers an alternative route onto the property ladder with support from a family member or close connection. In this comprehensive guide, we will explore what a guarantor mortgage is, how it works, who it is suitable for, and the key points to consider before proceeding with one. This article is designed to explain guarantor mortgages in detail and help you understand whether one may be appropriate for your circumstances. 

 

What Is a Guarantor Mortgage?

A guarantor mortgage is a type of home loan where a third party—usually a parent, grandparent or another family member—agrees to be responsible for the mortgage repayments if the borrower is unable to meet them. This acts as a safety net for the lender, reducing their risk and potentially allowing the borrower to secure a mortgage that they otherwise may not qualify for.

 

Unlike traditional mortgages that rely solely on the borrower’s income, savings, and credit history, a guarantor mortgage incorporates the financial backing of another person. This can enable the applicant to borrow more, achieve a better loan-to-value (LTV) ratio, or buy a property with a smaller deposit.

 

How Does a Guarantor Mortgage Work?

With a guarantor mortgage, the guarantor typically offers one of two things as security:

 

• Their savings, locked into a special account linked to the mortgage
• Their property (often the family home), used as collateral

 

Depending on the type of guarantor mortgage, the lender will retain a legal charge over the guarantor’s asset until certain conditions are met—usually until a percentage of the property value has been paid off, or the borrower’s financial situation improves to a point where the guarantor is no longer required.

 

The guarantor does not usually have any ownership rights over the property. However, they take on a legal commitment which carries significant financial implications if the borrower cannot maintain the mortgage repayments.

 

Types of Guarantor Mortgages

Guarantor mortgages come in several forms, and the correct option will depend on both the borrower’s and guarantor’s circumstances. Below are the most common types:

 

1. Savings as Security

This model involves the guarantor depositing a set amount—often 5% to 10% of the property’s value—into a savings account held by the lender. The money is locked for a specific period or until the borrower repays a portion of the mortgage, for example reaching 80% LTV.

 

If the borrower defaults, the lender can use the funds to cover missed payments. Otherwise, the guarantor receives their money back with or without interest, depending on the mortgage product.

 

2. Property as Collateral

The guarantor offers their own property as security. In this case, the lender may place a legal charge on the guarantor’s home. If the borrower fails to make repayments, the lender could seek to recoup losses through the guarantor’s property, which may include initiating repossession proceedings as a last resort.

 

3. Joint Borrower Sole Proprietor Mortgages

While slightly different from traditional guarantor mortgages, a joint borrower sole proprietor (JBSP) mortgage is another solution where a family member helps someone secure a mortgage. Both parties are named on the mortgage application, but only the buyer legally owns the property.

 

Unlike traditional guarantor mortgages, all borrowers named are jointly liable for mortgage payments, and their incomes are considered in affordability assessments. However, the non-owning party does not have legal rights to the property, and this arrangement can have implications for stamp duty and tax.

 

Who Can Be a Guarantor?

Generally, guarantors are close family members—frequently parents or grandparents, though some lenders may allow siblings or, in rarer cases, close friends. The primary requirements usually include:

 

• Being a UK homeowner
• Having sufficient equity in their property or savings to act as collateral
• Having a good credit history
• Understanding the responsibilities they are taking on

 

Lenders will conduct affordability checks on the guarantor and may require legal advice to ensure they understand the commitment fully.

 

Pros and Potential Benefits of a Guarantor Mortgage

Guarantor mortgages offer several advantages depending on your circumstances, including:

 

• Helping first-time buyers get onto the property ladder – especially useful for those with limited or no deposit
• Potential to borrow more – lenders may increase the loan amount due to the guarantor backing
• Possibility to access lower interest rates than unsecured loans or other alternatives
• A way to support family members without gifting large sums of money

 

While a guarantor mortgage can support those with lower incomes or weaker credit, it’s essential to consider the responsibilities involved for all parties.

 

Risks and Considerations

It’s crucial to approach a guarantor mortgage with careful thought. Risks and points to be aware of include:

 

For the Borrower

• Repaying the mortgage is still your responsibility
• If repayments are missed, credit scores for both you and your guarantor may be negatively affected
• Your relationship with the guarantor may be impacted if financial difficulties arise

 

For the Guarantor

• You’re liable for the mortgage debt if the borrower cannot pay
• Your own assets, including your home or savings, are at risk
• You may find it more difficult to borrow for yourself while acting as guarantor
• The arrangement may last for many years depending on repayment progress

 

Eligibility Criteria

Each lender will apply their own eligibility criteria when assessing guarantor mortgage applications. However, common criteria include:

 

• Borrower must be over 18 (some lenders require 21+)
• Proof of income and employment status is required
• Credit history will be reviewed for both borrower and guarantor
• Guarantor must meet affordability checks
• Property must be located in the UK and meet valuation requirements

 

Lenders may also place restrictions on property types or locations, so it’s important to review this during the process.

 

Alternatives to a Guarantor Mortgage

For those considering other options, several alternatives to guarantor mortgages might suit your needs:

 

Family Springboard Mortgages

These involve family members depositing funds into a linked savings account, similar to some guarantor mortgage models, but without the same legal liabilities. Funds are returned after a set period, assuming the borrower keeps up repayments.

 

Help to Buy Scheme (England)

Although closed to new applicants in 2023, other shared ownership or government-backed schemes may offer alternative pathways for first-time or low-deposit buyers.

 

Joint Mortgages

With a joint mortgage, two or more people apply together and share ownership and repayments. This can boost borrowing power but involves sharing ownership rights, unlike JBSP mortgages.

 

Gifted Deposits

Family members may prefer to gift money towards a deposit rather than acting as guarantor. Lenders will usually require a letter confirming the money is gifted and not a loan.

 

How to Remove a Guarantor from a Mortgage

Over time, as the borrower repays a portion of the mortgage and builds up equity, it may be possible to remove the guarantor from the agreement. This generally involves:

 

• Meeting a minimum LTV threshold (e.g., 80% or less)
• Demonstrating consistent repayments
• Passing new affordability checks independently
• Possibly remortgaging the property under standard terms

 

The process varies by lender and will often require legal and valuation fees. It’s advisable to review your mortgage terms and seek guidance before attempting to remove a guarantor.

Frequently Asked Questions About Guarantor Mortgages

Can a guarantor be removed at any time?

No, a guarantor is generally tied to the mortgage until certain conditions are met, such as repaying part of the mortgage or remortgaging. It depends on the lender’s terms and the borrower’s financial position.

 

Does being a guarantor affect my ability to get my own loan?

Yes, being a guarantor may reduce your borrowing capacity, as lenders consider this a financial commitment when assessing your ability to take on further credit.

 

What happens if the borrower defaults?

If the borrower misses payments, responsibility falls on the guarantor. This can lead to them losing savings, or even facing legal action if their property is used as security.

 

Does a guarantor motgage affect credit scores?

Being a guarantor does not directly impact your credit score initially, but missed payments can negatively affect both the borrower’s and guarantor’s credit profiles.

 

Can guarantor mortgages be used for buy-to-let properties?

Generally, guarantor mortgages are restricted to residential purchases for owner-occupation. Most lenders do not permit them for buy-to-let properties.

 

Legal and Financial Advice

Due to the financial and legal implications involved, many lenders require both the borrower and the guarantor to seek professional legal advice before proceeding. This ensures all parties fully understand the terms, their responsibilities, and the long-term commitments.

 

Final Thoughts

A guarantor mortgage can be a valuable option for those who need additional support to secure a home loan. Whether it’s helping first-time buyers take their first steps or assisting someone with limited affordability, the arrangement can open doors. However, it also involves responsibilities and risks that both borrower and guarantor must carefully consider.

 

A mortgage advisor can help review your specific circumstances and explore whether a guarantor mortgage or an alternative solution may be most suitable. By gaining a solid understanding of the structure and implications, you can make better-informed decisions as you navigate the path to property ownership.