Guarantor mortgages

What is a guarantor mortgage?

A guarantor mortgage is a home loan, where a parent or close family member takes on some of the risk of the mortgage by acting as a guarantor.

This usually involves them offering their home or savings as security against your mortgage, and agreeing to cover the mortgage payments if the homeowner defaults (misses a payment).

Some guarantor mortgages even allow you to borrow 100% of the property's value by using your parent's collateral in place of a deposit.

The main advantage of a guarantor deal is helping people who are struggling to get a mortgage, or allowing you to borrow more.

The main downside is that the guarantor could be liable for any shortfall if your property has to be repossessed and sold, which could mean losing a huge chunk of their savings or even losing their own home.

• Find out more: how much deposit do you need for a mortgage?

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Who are guarantor mortgages suitable for?

A guarantor mortgage could be suitable if you're looking to buy a property with...

• A low income: lenders will decide how much to lend you based on your income, so having a guarantor may enable you to get a bigger loan.
• A small/no deposit: you could potentially borrow up to 100% of a property's value with a guarantor mortgage.
• A bad credit score: having a guarantor might make a lender more inclined to offer you a loan.
• Little or no credit history: for example, if you've never had a credit card - this means lenders won't have any evidence of how well you deal with debt, so having a guarantor could mean they're more inclined to give you a mortgage.

An independent mortgage broker can give you more in-depth advice on whether a guarantor mortgage is suitable for you.

• Find out more: getting a mortgage with a bad credit score

Who can be a mortgage guarantor?

Many lenders will require the guarantor for your mortgage to be a close family member - usually a parent.

Your guarantor will need to have:

• Savings or property: your mortgage lender will either hold some of your guarantor's savings in a locked account, or will take legal charge over a portion of their property to secure the mortgage on your property.
• A good credit history: so lenders can trust that they are financially reliable.
• Received legal advice: a requirement from some lenders in order to confirm guarantors are aware of the risks.

You can find out more about the risks and alternatives in our guide to how parents can help first-time buyers.

Guarantor liability if you can't pay your mortgage

If you don't miss your repayments, your guarantor won't have to do anything.

However, if missed repayments mean that the lender has to repossess and sell your property, both you and your guarantor would usually be responsible for any shortfall if the property is sold for less than the amount still owed on the mortgage.

For example, if you owed the lender £150,000 but they were only able to recover £125,000 by repossessing and selling your property, the £25,000 difference could be taken from your guarantor's savings or property, depending on what they used to guarantee the mortgage.

The best way to minimise this risk is to remortgage as soon as you can to a deal which doesn't require a guarantor.

This will be possible as soon as you've built up enough equity in your property (by paying down your mortgage plus any growth in its value).

• What to do if you can't pay your mortgage

Types of guarantor mortgages

Guarantor mortgages all come with slightly different names and eligibility criteria, but they generally fall in to one of these two categories:

Savings as security

Some lenders offer mortgages where a family member deposits cash (typically 5%-20% of the property price) into a special savings account.

The money is held as security for your mortgage for a set number of years, or until the amount you owe falls below a certain percentage (eg 80%) of the property's value.

Your family member can usually earn interest on the money linked to your mortgage, although the rate might be lower than they'd get with other savings accounts.

If you miss any mortgage repayments, the lender could hold on to your family member's savings for a longer period. If the lender had to repossess and sell your property, and received less than what you still owed on your mortgage, they could recoup the difference from your family member's savings.

Property as security

These deals involve a charge being placed against the guarantor's property. This means that to be eligible, the guarantor will usually need to own a high proportion of their property outright.

In the worst-case scenario, if the lender had to repossess and sell your property for less than the amount remaining on the mortgage, your family member could stand to lose their home.

Joint and JBSP mortgages

Joint mortgages allow a parent and child to buy a property together, meaning both names are on the mortgage and the property deeds.

This means your parent can use their income and savings to boost your mortgage changes.

There are two big pitfalls, however.

First, the parent will be jointly responsible for the mortgage. Second, if they already own their own home, they will need to pay the second property stamp duty surcharge, which can run to thousands of pounds.

JBSP mortgages

Joint Borrower Sole Proprietor (JBSP) deals also allow parents and children to club together to get a mortgage.

The big difference is that, while the parent and child are both named on the mortgage, only the child's name will be on the property's deeds, meaning the parent will be able to avoid the stamp duty surcharge

However, older parents may struggle to get accepted, and lenders may prefer applications where the child can prove their earnings will rise significantly in the future.

Unlike some products that use the guarantor's savings or property as collateral, joint and JBSP mortgages will still require the buyer to put up a deposit, which varies from deal to deal.

Guarantor mortgages FAQs