As a growing number of first-time buyers struggle to get on the housing ladder, guarantor mortgages are becoming increasingly popular. A guarantor mortgage is where a blood relative – usually a parent - agrees to pay the mortgage if their child defaults on their payments.
The advantage of a guarantor is that the lender will look at the guarantor’s income, not yours, to cover the cost of the loan. This usually means you can take out a bigger mortgage than your salary alone justifies. However, you must still ensure you can afford the monthly repayments, as you will be making them out of your income, not your parents’.
For example, if your father, who is acting as your guarantor, earns £50,000 per annum, theoretically you could borrow up to, say, four times his salary - £200,000. But the financial guarantor needs to prove that their income covers their own mortgage commitments, if they have any, and other outgoings, as well as yours.
Most lenders insist the guarantor covers the whole of your mortgage as well as their own. But some lenders require that the guarantor cover only the shortfall between what the mortgage applicant can afford and the home loan. So if you earn £25,000 and can get a mortgage for £100,000 but the property costs £150,000 and you only have a £15,000 deposit, the guarantor only needs to cover the shortfall, or £35,000.
As your salary increases you will be able to take on the full responsibility for the mortgage and the guarantor is released from their commitment.
Considering using a financial guarantor? SPF can arrange a guarantor mortgage for you. Because financial guarantors will be liable for your mortgage, they must take independent financial advice to ensure that they fully understand the implications of this.