Mortgages requiring a Guarantor
A Guarantor mortgage is an alternative option to joint purchases, whereby both the applicant and their guarantor become co-owners of the property.
With a guarantor mortgage, you need to contribute a deposit as normal, and the payments will typically be on a repayment basis since the most common applicants for guarantor mortgages are first-time buyers. Repayments are made monthly and include a proportion of the borrowing plus interest. The guarantor provides a guarantee that you will make your monthly repayments, and are assessed for creditworthiness alongside the applicant. The guarantor has no obligation to finance any part of the deposit and does not own the property.
Missing payments on a Guarantor mortgage
Having provided a guarantee, if you cannot keep up with your monthly repayments, then your guarantor will need to help make up the missing payments. If your guarantor is unable to help bring your repayments back up to date, then there is a risk of your property being repossessed. Given that the guarantor is not on the title deeds and does not own any part of the property, they do not have any ownership rights, whether or not the mortgage remains in good order.
Eligible mortgage Guarantors
Many lenders offer guarantor mortgages, but each will have different lending criteria. Common guarantors include parents, grandparents, relatives or partners. Some lenders only accept guarantors with a familial link to the applicant, such as a parent, so if you are stuck choosing which lender to apply to, give us a call and let us help! A person can be your guarantor whether or not they have a mortgage of their own. Their eligibility will depend on their liquidity and personal assets, rather than their mortgage position. Buy-to-Let mortgages are usually not considered in the application process since they are usually self-funding.
An alternative to guarantor mortgages is joint borrowing, where two or more applicants apply for the mortgage, but only the main applicant is named as the owner on the property title deeds. This type of mortgage is called a ‘joint borrower, sole proprietor’ mortgage. The key difference from a guarantor mortgage is that a guarantor is not a borrower, but on a joint borrower sole proprietor mortgage, every named person on the application is a borrower. A guarantor is a subsidiary party to the mortgage agreement and remains in the background unless the owner fails to keep up with their repayments. However, each person who is part of a joint borrowing mortgage will be a borrower and are all equally responsible for keeping the mortgage up to date.
Benefits of guarantor or joint borrower sole proprietor mortgages
- Improved affordability – helping applicants who have been unable to secure a mortgage to access the lending they need
- Help for first-time buyers – either scheme is eligible for Stamp Duty exemptions available to first-time buyers since the buyer is the applicant on the title deeds
- Stamp Duty relief – there is no additional stamp duty charge against a guarantor or joint borrowing applicant, even if they already own another property since they have no ownership rights to the property
Choosing a guarantor mortgage
Each of these options is ideal for first-time buyers or any property purchases where the applicant cannot secure the lending they need. The benefit is in improving the strength of the application, and increasing the affordability and thus what a lender can offer. Both guarantor and joint borrowing mortgages are suited to applicants on a low income, or who is unable to raise the finance they need on a typical mortgage basis.
Choosing a joint borrower sole proprietor mortgage
This option has an additional benefit for buyers hoping to purchase a rental property, and one of the applicants has tax-exempt status or does not yet own another property. Every applicant is included in the assessment of the application, but only the named individual on the title deeds is considered the owner. If one of the applicants is a first-time buyer, then if they are the property owner they will not incur the stamp duty payable on second property purchases. Should they be on a lower tax bracket, or not be liable to pay taxes, then the income tax payable against the rent achieved from the property will also be less.
Lenders of guarantor mortgages
Both guarantor mortgages and joint borrower sole proprietor mortgages are widely available, however, the criteria and lending available varies significantly. To find the best mortgage option for you, and to help decide on which type of mortgage suits your circumstances, give Revolution Finance Brokers a call today!
What happens if you have a guarantor mortgage and default on your payments?
If you do not keep up with your mortgage then your guarantor will be approached to make up for the missed payments. This is because they have provided a guarantee that you will pay your mortgage, and become liable if you default. If your guarantor will not or cannot make up for missed payments, there is a risk that your property will be repossessed.
Can I be a guarantor for a mortgage?
Many guarantors are parents or relatives of a first-time buyer, and add a layer of security to the application process to help the lender achieve the mortgage offer that the applicant needs. Whether or not you will be accepted as a guarantor depends on your own financial situation and your relation to the applicant.
Can I be a guarantor if I already have a mortgage?
Yes you can, although the same affordability criteria will apply so you will need to have enough financial security to be able to act as a guarantor on a mortgage in addition to your own mortgage. Every lender will need to assess each applicant in terms of affordability, so provided you pass this assessment there is no reason you cannot be a guarantor in addition to your own mortgage.
What are the alternatives to guarantor mortgages?
Some guarantors may be reluctant to support a mortgage application, since their name will not appear on the title deeds. This means that the guarantor has no right of ownership over any part of the property but will still be liable to make up for any shortfall in mortgage repayments. Another option is joint borrower sole proprietor. This type of mortgage allows for multiple applicants to be named on the mortgage application, but for only one of those applicants to be the resident, or proprietor of the property. Whilst the additional applicants are still not named on the title deeds, they do have a direct borrower relationship with the mortgage lender which means they have more rights and opportunities to be in direct contact with the lender and make decisions about things such as renewing their mortgage.
Who can apply for a guarantor mortgage?
Guarantor mortgages are appropriate for any property buyer who cannot provide enough security to secure a mortgage offer from a lender. The guarantor is usually a parent or family member, and guarantor mortgages are typically used by first-time buyers as a way to get onto the property ladder.