What is a guarantor Mortgage?
A guarantor mortgage guarantees you will repay your mortgage by appointing a guarantor such as a family member to take on full responsibility if you fail to make your regular payments.
In a scenario where you default on the mortgage, your guarantor will be responsible for paying the whole mortgage debt in full and may even lose some of their possessions if they fail to. This could be a home reposession or loss of other assets.
In some cases the lender will place a time limit or an amount to which the guarantor will be liable.
How do Guarantor Mortgages work?
A guarantor mortgage will allow a first-time buyer to borrow up to 100% of a property value as long as their guarantor guarantees a minimum 75% of the mortgage.
A guarantor mortgage will usually rely on the guarantor placing their property as collateral against the mortgage. Their property could then be repossessed to recoup any losses the lender might incur due the borrower defaulting on the mortgage.
The cost of a guarantor mortgage is the same as with any other mortgage. The same mortgage fees apply.
Guarantor mortgages are good for people with;
- Low credit ratings
- Little or no deposit
- Low Mortgage affordability
Who can be a guarantor?
A mortgage guarantor can be a family member or occasionally a close friend but different lenders have varying policies on this.
A guarantor will need to:
- Have a good credit score
- Own assets which can be liquidated to cover the cost of the mortgage incase of a default
Final thoughts on guarantor mortgages
Guarantor mortgages are very risky and hence both parties must always seek independent financial advice before applying for a guarantor mortgage.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.