Guarantor

Sometimes, you may not have the necessary income to support the mortgage amount you need; even with the most generous of income multiples. If lenders are unable to lend you enough to buy what you're looking for there is an alternative option where you can ask somebody you know to act as a guarantor to the mortgage.

Guarantors can be useful not only for the mortgage amount but for other scenarios where you cannot make a mortgage application yourself such as not being a homeowner, being unemployed, a student, poor or no credit history or bad credit such as bankruptcies or CCJs.

What is a Guarantor?

A guarantor is a person or party who guarantees the repayment of a mortgage loan, using their own assets if necessary. The guarantee (sometimes known as 'surety') means that if the borrowers cannot afford their monthly repayment, the guarantor is legally obliged to make up the shortfall to the lender.

It is common for parents to act as guarantors for their children in order to help them get on the property ladder although a guarantor does not need to be a relative and can be provided by anybody assuming they have the income and/or assets to accommodate the guarantee. The guarantor must be able to prove their income is sufficient to pay the monthly repayments after paying all of their own expenses.

Guarantor mortgages work in exactly the same way as standard mortgages and the product range is the same for guarantor mortgages as non-guarantor mortgages. The only difference being that the guarantor's details are registered against the mortgage and can be called upon in the event of non-payment.

Having your mortgage guaranteed does not mean you can sit back and not pay your mortgage as firstly, you will be putting you guarantor in financial hardship but secondly, the guarantor can take legal action to recover their money from the borrower if need be.

Advice for Guarantors

Becoming a guarantor can be a huge financial commitment as once the guarantor signs the agreement, they are liable for the full amount. If the borrower cannot or refuses to pay the mortgage, it is the legal obligation of the guarantor to make up the deficit. It is for this reason that it is strongly advised to seek independent financial advice before becoming a guarantor.

Advantages of Guarantor Mortgages

• Allows those who would not otherwise be able to get a mortgage to do so
• You have the comfort that if you cannot afford the mortgage, your guarantor will step in and make up the deficit

Disadvantages of Guarantor Mortgages

• Finding a guarantor is incredibly difficult and usually only occurs between close family members (mostly parents)
• You can put your guarantor in serious financial difficulty if you do not maintain the repayments as they will be legally bound to making the repayments on your behalf
• It is quite difficult to remove a guarantor once added as the lender must be convinced that you are able to sustain the mortgage payments yourself

Summary

• Guaranteed mortgages are when a party commits to maintaining the mortgage repayments if you are unable to do so
• Guarantors enable borrowers to get a mortgage they would not otherwise be able to (e.g. if you need to borrow more than your income allows, have bad credit, a poor or no credit history or are not employed)

For more information about 'Guarantors', you can call us on 020 8783 1337 or submit an online quote.