How do guarantor mortgages work and can I get one?

A guarantor mortgage is a mortgage where someone else besides you is legally responsible for repaying your loan if you cannot.

This type of mortgage may be an option for those with little (or no) deposit, a poor credit history, less reliable income, or various other obstacles to borrowing.

Having a family member, for example, as a guarantor for your mortgage could be the support you need to get on the property ladder.

A guarantor can help you borrow more money or access better rates, but there are risks you must be aware of, so it’s important to do your research first.

Summary

• A guarantor mortgage is a mortgage where someone else is responsible for repaying your loan if you cannot
• A guarantor can help you get on the property ladder if you have difficulty getting a mortgage
• There are four main types of guarantor mortgage

What is a guarantor mortgage?

A guarantor mortgage is a loan where someone (usually a family member such as a parent) provides extra security by agreeing to cover any repayments you miss.

If the guarantor can’t cover these repayments out of their ordinary income, then their other assets (e.g. savings or property) serve as collateral for the loan.

This means the lender could take the savings or sell the guarantor’s property to repay any shortfall on your mortgage.

Another option for recovering the loan is for the property to be repossessed, but this won’t be sufficient if the property has gone into negative equity, so it’s worth less than the outstanding loan.

Here’s an example:

You have a £200,000 mortgage on a £250,000 but you are no longer able to make the repayments. The lender decides to repossess your property but calculates that it is only able to recover £150,000 from the sale. They look to the guarantor’s savings or property for the £50,000 shortfall.

The guarantor doesn’t own a share of the property and isn’t on the title deeds, but they are on the legal documents to outline the collateral they offer as security.

A key advantage of a guarantor mortgage is it means less risk for the lender, so you may be able to access more funds or better rates.

Who might need a guarantor mortgage?

A guarantor can help you get on the property ladder if you have difficulty getting a mortgage. 

This might be because you have: 

• A bad or sparse credit history 
• Recently started a new job 

• A low or inconsistent income 
• A small deposit 

Who can be a guarantor?

Lenders need to be confident they can rely on your guarantor to support you for a long time, which is why they usually ask for guarantors to be a parent. 

There are some circumstances where they will accept other close family members or spouses with separate bank accounts. 

Guarantors typically need to be at least 21 years old although some lenders will have upper age limits, but it will also depend on the guarantor’s personal circumstances. 

A good credit history and assets, such as savings or property, are also necessary. 

If your guarantor hasn’t paid off their mortgage, your lender may insist they have a certain amount of equity in their property or prove they can cover your repayments, as well as their own.  

It’s worth noting each lender will have its own guarantor criteria. You should check whether your guarantor plans to get a mortgage, as they may not be able to if they act as collateral for your loan. 

The guarantor may not need to be on your mortgage for the whole duration of the loan. 

If you make every repayment in full for a period of time or build up equity in your property, you can speak to your lender about removing your guarantor.

Alternatively, you may be able to remove your guarantor when you remortgage, but you should seek expert advice first, as rejected applications can harm your credit score.

Do guarantors have to go through a credit check? 

Lenders will check your guarantor’s credit – the higher their credit score, the more likely your mortgage application will be approved. 

The guarantor should have a ‘soft’ credit check, which shouldn’t impact their credit score. 

However, their credit score may be impacted if you fail to keep up with repayments, as they’ll now be responsible for them.  

How much can I borrow with a guarantor mortgage?

With the extra security of a guarantor, you may be able to borrow up to 100% of the property value. 

However, 100% mortgages are rare, so you will likely need at least a 5% deposit. If you have a poor credit history, lenders may still be cautious and only offer you a limited amount. 

Every lender has its own criteria, so it is worth researching to see which ones are likely to accept you or talk to a mortgage broker who’ll do the hard work for you.  

Your lender may not allow you to use a guarantor mortgage with a government scheme such as Right to Buy or shared ownership as they tend to avoid this extra complication. 

Types of guarantor mortgage

These are the main guarantor mortgage types offered by lenders at the moment:

Savings as security 

The guarantor deposits money into an account held by the bank, which earns interest. The guarantor will get these savings back unless you miss any payments. 

In this case, the lender will either hold the savings until they recover the money from you or sell your property and use the savings pot to cover any shortfall between the amount the property sells for and the loan value. 

Property as security

These mortgages use the guarantor’s property as security. If there is a shortfall after repossessing and selling your property, the guarantor could lose their home. 

Family offset mortgages

Your guarantor deposits money into a savings account linked to your mortgage, which offsets the amount of the loan you pay interest on. 

It could save you a significant amount of money, but the savings won’t earn interest and may be locked away for a long period of time. 

If you miss payments, the lender will recoup the money in the same way as a savings as security mortgage. 

Family link mortgage

This mortgage gives you 90% of a property’s value as a mortgage but the remaining 10% is also a mortgage secured against the guarantor’s home, which they must own outright. 

You and the guarantor will have to repay the 10% mortgage in the first five years. If you default, your guarantor is only responsible for that 10%. 

All guarantor mortgages carry risk, so it is important to seek expert advice from a mortgage broker first. 

What are the risks of guarantor mortgages?

The main risk with a guarantor mortgage is if you miss your repayments, the lender can recoup the money from the guarantor’s savings or from selling their home. 

Any missed payments may also negatively impact the guarantor’s credit score. 

Being a guarantor will also affect their own mortgage application, but won’t affect their tax bill. 

It is wise to seek legal advice before agreeing to be a guarantor, and some lenders will request it to make sure the guarantor is aware of the risks. 

As a borrower, you are open to the same risks as a traditional mortgage. There is also the risk the guarantor will pass away while you have the mortgage. 

In this situation, you may be able to use their estate as security, or the lender may ask you for a new guarantor. 

Can I get a guarantor mortgage with bad credit?

Trying to get a mortgage with bad credit can be tricky, and your options will be limited compared to those with a better credit history. 

That’s why adding a guarantor to your mortgage can make your application more likely to succeed.  

Ultimately, a mortgage is offered based on your level of financial security. 

So, even if you have a bad credit rating, if your guarantor has a lot of collateral to offer if you miss loan repayments, such as savings or property, this can benefit your application.

What happens if my guarantor dies?

The death of your guarantor is not something you’ll want to consider, but it does happen, so it’s important to make contingencies. 

So, what happens if your guarantor dies? It’s often up to the lender on how to proceed. 

In some cases, you’ll be required to find a new guarantor. However, others may allow you to pay off some of the mortgage with your guarantor’s estate. 

To ensure you won’t face difficulties if your guarantor dies, it’s important to check your lender’s policy before making an application, to establish the situation you’ll be in if the worst happens. 

What happens if my guarantor cannot cover repayments?

If your guarantor cannot make repayments on your behalf, your lender will investigate and may offer an arrangement, such as extending your mortgage term so monthly repayments are lower.  

However, if your guarantor still cannot cover monthly repayments, their savings and/or property are at risk.  

Alternatively, if a guarantor decides not to pay (but has the money to do so), they can face legal action as they will be breaching the mortgage contract.  

How do I get a guarantor mortgage?

Many lenders, including high-street banks, offer guarantor mortgages, but the deal they offer will depend on your circumstances and those of your guarantor. 

You can apply for a guarantor mortgage directly with providers similar to a traditional mortgage, but you will need personal and financial details of the guarantor. 

It’ll likely be easier applying for a guarantor mortgage via an independent mortgage broker who will have access to a wide range of lenders and can advise you on the best deal for you.  

Unbiased can quickly connect you to a qualified mortgage broker who can help you find the best mortgage for your unique circumstances.