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.

Guarantor mortgages explained

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.

Joint Borrowing

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

1. Improved affordability – helping applicants who have been unable to secure a mortgage to access the lending they need
2. 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
3. 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!