Are you a first-time buyer? Could you use help getting a mortgage? Do you want help from your parents or friends without emptying their pockets?
If so, a guarantor mortgage might be the right mortgage for you.
A guarantor is someone who is willing to guarantee your mortgage payments – this could be your parents, a close relative, or even a long-standing friend. By combining your income with your guarantor’s income, you can increase the amount of money you borrow from a lender. Plus, your guarantor doesn’t have to pay a penny providing you make all your repayments. With a little boost from your guarantor, you can finally get on the property ladder.
Securing a mortgage these days is harder than ever, especially for first-time buyers. Many circumstances have made it more and more difficult to get on the property ladder:
These complications have caused a 44% decrease in the number of first-time buyers compared to 2002.
By putting a guarantor on a mortgage, you can secure a bigger loan without having to ask your parents for a large sum of money to cover your deposit. Lenders can offer more money towards your mortgage because they have combined incomes supporting the loan. By putting your guarantor’s name on the mortgage deed, you can secure a larger mortgage and buy your new home sooner.
Yes. If you default on your repayments, your guarantor is then responsible for repaying the mortgage. Therefore, your guarantor is at financial risk and could even lose their home if you can’t make your repayments. This is especially true in most cases where the guarantor is liable for the entire mortgage (although some lenders only require the guarantor to cover the shortfall between the property’s value and the mortgage amount).
In order to avoid these risks, make sure you are confident that you can afford your monthly repayments. If you want a guarantor for a mortgage, make sure your guarantor understands all the risks and suggest that they seek legal advice before agreeing. You can draw up a contract to determine your plan of action in case you can’t meet your repayments. Remember that you are in a financial agreement with someone close to you, so avoid any potential emotional strain on your relationship by planning ahead.
Most mortgage guarantors are parents who may have just finished paying off university costs or spent money on their child’s wedding. Many parents plan to help their children buy a property by paying for the deposit. However, increasing house prices have led to higher deposits, which has left parents struggling to help their children cover the ever-increasing deposits for new homes. Instead of paying out a large lump sum of cash, parents can be a guarantor and save their money while helping their children get on the property ladder.
Yes. Most lenders require a guarantor to be no more than 60 years old at the time of the guarantor mortgage application. This age limit can be waived, but most lenders require it in order to avoid any changes in the guarantor’s income level. As guarantors reach the end of their careers or plan for early retirement, the lenders worry about affordability since the guarantor’s income has to be able to cover the entire loan.
Guarantors are also put through the same financial assessments as the person taking out the loan. Therefore, a guarantor’s income (minus any of their own financial commitments) must be able to cover the entire mortgage. However, the guarantor’s income figure can include pensions and investments.
If you are deciding whether to be a guarantor, make sure to think ahead. If you plan to buy another property in the near future, remember you are a guarantor and are responsible for someone’s mortgage. Lenders might see you as over-committed financially if you try to take out another mortgage at the same time as being a guarantor.
There is no fixed time for a guarantor to remain on a mortgage. You can remove the guarantor at any time during your repayments. By removing the guarantor, you are taking sole responsibility for your mortgage. Everything on your mortgage will be transferred into your name and your guarantor will no longer be at any risk.
Remember, a guarantor is a temporary assistant. Plan ahead and be ready to take complete control of your own mortgage.
Lenders look for buyers who have a structured career plan ahead of them. In order to remove your guarantor, you need an increase in income. If lenders can’t see the likelihood of you taking more control over your mortgage in the next few years, they are less likely to give you a mortgage with a guarantor.
Guarantor mortgages are ideal for buyers who can almost afford a deposit but don’t want to wait any longer before buying a house. You should be able to make your monthly repayments and plan ahead for taking sole responsibility of your mortgage in the future.
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