Can I use a guarantor for my mortgage?

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What is the role of a mortgage guarantor? 

With a guarantor mortgage, you have an additional person added to your mortgage application who adds support, helping you to get approved. This can either be helpful if you don’t have a large enough (or any) deposit or if you’re on a low income and will struggle with the repayments on your mortgage loan. 

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Guarantors typically use either a valuable asset, such as their home, or some of their savings as collateral to guarantee the loan. This means that if you miss your repayments, your lender will require the guarantor to either make repayments on your behalf or, in the worst-case scenario, they could repossess their asset. 

Who can be a guarantor?

Every lender has different criteria regarding who can be a guarantor on your mortgage, but most tend to prefer close family members, such as parents or grandparents. That said, it’s also possible to find lenders who are happy for more distant relatives, and even friends to support your application. 

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Guarantors also often need to be homeowners, or at least to have repaid the vast majority of their own mortgage. Some lenders will also require proof that potential guarantors have taken independent legal advice to ensure that they understand the risks involved with being a guarantor. 

How does a guarantor mortgage work?

A guarantor mortgage works similarly to any other mortgage. The only way it would differ is that if you became unable to make your mortgage repayments, the guarantor would be expected to step in and cover them on your behalf. Although it’s the named borrower on the mortgage who owns the property, you are both legally responsible for the debt.

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The guarantor’s own home is often used as collateral and may be repossessed if they are unable to repay your debts when required. However, some mortgages are secured against savings. This is where the guarantor deposits an agreed sum of money into an account held with the same lender as your mortgage. In this case, their savings usually earn interest, and they will be able to withdraw their savings once you’ve repaid a certain amount of the loan. 

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Could I borrow more? 

A guarantor mortgage can make it possible for you to borrow more money than you would be able to with a standard mortgage. In some cases, you can borrow as much as 100% of the property’s value. At the time of writing, only a very limited number of 100% mortgages are available without a guarantor, you would usually be capped at around 95% LTV loan-to-value - which means you’d need at least a 5% deposit. 

Who might benefit from a guarantor mortgage?

Guarantor mortgages are suitable for borrowers who:

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• have very little or no deposit
• are on a low or fluctuating income
• have a poor credit history 
• Having any combination of the above or similar risk factors that make lenders cautious, a guarantor can help to get the application approved

Are there any potential negatives to a guarantor mortgage?

A guarantor mortgage, on balance, holds significantly more risk for the guarantor than the applicant. While the applicant has the potential to lose their home if they default on the repayments, the guarantor is potentially risking their home or savings without the benefit of having any ownership over the mortgaged property. 

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This is why a guarantor must be not only completely aware of the risk in helping you, but also why lenders prefer parent/child arrangements. Usually, only someone with a very close bond is comfortable with this level of risk.

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In terms of the borrower, you can expect higher interest rates, especially on 100% LTV mortgages.

Are there any alternative ways my family can support my mortgage?

If you’re struggling to raise a deposit to buy your first home, or are on a low income and would struggle to meet lender criteria, there are other options available if your relatives don’t want to or aren’t able to be a guarantor:

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• Gifted cash deposits - most lenders accept a gifted deposit for a first-time buyer, so long as the gifter is willing to sign to confirm repayment is not required
• Family offset mortgages - this is where family members use savings to help reduce the interest on your mortgage repayments, meaning monthly repayments are lower. However, their savings would not be used in the event that you became unable to repay your mortgage
• JBSP (Joint Borrower Sole Proprietor) mortgage - this works similarly to a guarantor mortgage, but instead of using their property as collateral, joint applicants usually offer to support the mortgage repayments with their salary. The salary or savings of a supporting applicant (joint borrower) are usually considered when calculating the loan, but they have no ownership over the property, like in a standard joint mortgage

Guarantor mortgage FAQs

Can a guarantor ever leave the mortgage?

Yes, they can, usually once an agreed amount has been repaid. Often, the lender will allow a guarantor to be removed either after a set number of years or when the LTV of the borrowing has reduced to an acceptable level. For example, if you borrowed at 100% LTV, it may be when your borrowing has reduced to 75% LTV. This happens both through repayment and if the property gains value over time. 

Can a guarantor support a buy-to-let mortgage?

Lenders won’t usually allow guarantors to support a buy-to-let mortgage, as they are a commercial product, not a foot onto the residential property ladder. 

That said, buy-to-let mortgages usually have lower repayments as they are taken out on an interest-only basis. The loan is also based on rental income rather than your own income, which can mean that acceptance criteria are less strict. However, you will likely need a larger deposit of around 25%