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Guarantor Mortgage

What is a Guarantor Mortgage?

Guarantor mortgages or sometimes known as the mortgage guarantee scheme – are a type of home loan designed to help individuals who may not qualify for a mortgage on their own due to insufficient income, poor credit history, or lack of a substantial deposit.

In this mortgage arrangement, a guarantor—typically a parent, close relative, or friend—agrees to cover the mortgage repayments if the borrower is unable to meet their obligations.

This added security for lenders makes it easier for borrowers to secure a mortgage and potentially obtain more favorable terms.

How they work?

A guarantor mortgage involves a guarantor, usually a family member, who agrees to cover the mortgage payments if the borrower cannot. The guarantor can provide security in the form of savings or property equity. This arrangement allows the borrower to secure a higher mortgage amount or qualify with a lower deposit​.

  1. Eligibility: Guarantor mortgages are typically available to individuals who have difficulty meeting standard mortgage criteria on their own. This could be due to insufficient income, lack of deposit, or poor credit history. The guarantor must have a strong credit history, sufficient income, and often, significant equity in their own property.
  2. The Role of the Guarantor: The guarantor agrees to cover the mortgage payments if the borrower defaults. This means the guarantor’s income and assets are considered when assessing the mortgage application, providing added assurance to the lender. The guarantor does not have ownership rights to the property but assumes legal and financial responsibility for the loan.
  3. Types of Guarantor Mortgages: There are generally two main types:
    • Income Guarantor Mortgages: The guarantor’s income is used to supplement the borrower’s income to meet the lender’s affordability criteria.
    • Security Guarantor Mortgages: The guarantor’s property or savings are used as collateral to secure the mortgage.
  4. Loan Terms and Conditions: The specific terms of a guarantor mortgage can vary, but they generally include:
    • Deposit Requirements: Often lower or no deposit needed due to the guarantor’s backing.
    • Interest Rates: Potentially lower interest rates due to reduced risk for the lender.
    • Loan Amounts: Higher loan amounts may be available compared to what the borrower could secure on their own.

UK Lenders Offering Guarantor Mortgages

Several lenders in the UK offer guarantor mortgages, which can help individuals secure a mortgage by having a guarantor support their application. Here are some of the main lenders that provide this type of mortgage:

1. Barclays

Barclays offers a joint-borrower, sole-proprietor (JBSP) mortgage, which allows a guarantor to help the borrower qualify for a mortgage without having a legal claim to the property. They also provide a family springboard mortgage, where a family member puts up cash savings as security for the loan​.

2. Nationwide Building Society

Nationwide provides guarantor mortgages where the guarantor must be a close family member or have a long-term relationship with the borrower. The guarantor must live in the UK and have their income paid into a UK bank account.

3. Aldermore

Aldermore offers guarantor mortgages suitable for borrowers who might struggle to get a mortgage on their own due to income or deposit constraints.

4. Kent Reliance

Kent Reliance is another lender that offers guarantor mortgages, which can help borrowers with lower incomes or poor credit histories​.

5. Leeds Building Society

Leeds Building Society provides guarantor mortgages designed to help first-time buyers and those with limited deposits​.

6. Cumberland Building Society

Cumberland Building Society offers guarantor mortgages with options for using either savings or property as security​.

Risks and Considerations

For the guarantor, there is a significant risk involved as they are liable for the mortgage repayments if the borrower defaults. Their savings or property could be at risk if repayments are missed. It’s crucial for both the borrower and guarantor to understand the obligations and potential consequences before entering into such an agreement​.

For more detailed advice and to find the best option for your situation, it is advisable to consult with a mortgage broker who can compare deals from multiple lenders and guide you through the application process.

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