What is a mortgage guarantor?

For many first-time buyers, the biggest challenge is saving enough money for a deposit. Without a deposit, many lenders may be hesitant, making it difficult to get a mortgage offer accepted. However, by acting as a mortgage guarantor, you can help someone secure their dream home. Just be sure you understand what being a guarantor includes, as there are risks involved.

What is a guarantor mortgage?

As a mortgage guarantor, you are committing to cover the borrower’s mortgage payments if necessary. While your name will appear on the mortgage, you won’t have ownership rights or be listed on the property deeds. Your sole responsibility is ensuring timely repayments in case the borrower defaults. Therefore, individuals typically act as guarantors for close family members, such as parents or relatives they trust.

There are two ways to serve as a mortgage guarantor:

• Use your savings as security against the mortgage – this involves placing your savings in an account controlled by the mortgage lender. Withdrawal restrictions may apply until a specified portion of the mortgage is repaid.
• Use your property as security against the mortgage – in this scenario, your own home could be at risk of repossession if the borrower defaults on repayments.

Who can be a mortgage guarantor?

The eligibility criteria for becoming a mortgage guarantor can vary among lenders, but generally, a parent, step-parent, grandparent, or friend could potentially act in this capacity.

Parents are the most common type of mortgage guarantors we encounter. Many parents support their children through various life stages, whether it’s helping with university expenses or contributing to their wedding. Supporting these milestones can often leave parents with limited funds to assist with other financial goals, such as helping their children onto the property ladder. Being a mortgage guarantor is appealing because it doesn’t require an upfront financial commitment.

To qualify as a mortgage guarantor, you typically need to meet the following criteria:

• Be at least 21 years old
• Own your home outright or have sufficient equity to meet the lender’s requirements
• Have a stable income that demonstrates your ability to cover any missed repayments as well as your own financial obligations
• Maintain a good credit score to demonstrate financial reliability
• Consider seeking legal advice, as some lenders may require proof of legal consultation before processing the application

Will being a guarantor affect my mortgage?

It won’t have an immediate impact on your current mortgage, but it may influence future mortgage applications you submit. When you apply for a mortgage, lenders carefully look at all aspects of your financial situation, including any existing debts or dependents you may have. As a guarantor, you assume responsibility for repaying the debt of your family member or friend. Therefore, lenders must consider this obligation when assessing your ability to afford additional financial commitments.

Do I have to be a guarantor for the whole term of the mortgage?

Once the borrower has built up sufficient equity in their home, subject to the terms of the initial agreement with the lender, you may be released from your role as the guarantor.

Searching for expert advice?

Whether you’re considering becoming a mortgage guarantor or have concerns about your deposit, contact one of our knowledgeable advisers today. Serving as a mortgage guarantor can be highly rewarding, but it’s essential to carefully assess if it aligns with your circumstances and goals.