With house prices rising faster than ever and UK incomes not increasing in-line with them, many potential homebuyers do not have enough of a deposit or high enough income, making the guarantor mortgage more essential than ever. Asking someone to guarantee the mortgage may be the only route to approval.
Who is the guarantor?
The guarantor is usually a family member and someone who already owns their own property and /or has a large savings account. It is a similar concept to a director guarantee because another individual is being asked to guarantee the loan. However, guarantors for residential mortgages are frequently close members of the family, often a parent of the borrower.
The benefits of a guarantor mortgage
The guarantor mortgage can help a buyer secure a property. More often than not, the borrower knows they can pay the mortgage payments, but they need to give the lender assurances. It can be the difference between buying a property that ticks all the boxes, rather than one that is too small, or in the wrong location. A guarantor mortgage may be needed simply because the borrower does not earn enough. It’s also common to seek a guarantor mortgage because the borrower does not have a large enough deposit. First-time buyers and those with a poor credit rating are also among borrowers who might need a guarantor.
Potential issues in a guarantor mortgage
The guarantor needs to think carefully before they agree to commit. In most cases, the guarantor will not be called on again, and the borrower will be able to make their mortgage payments without issue. However, there is a real chance that the guarantor will need to pay the mortgage payments if the borrower is unable to. In most cases, this only happens for one or two months whilst the borrower gets their finances in order, but in some cases, the guarantor may make ongoing mortgage payments. In the worst-case scenario, the guarantor may be forced to sell their own home to pay the mortgage for the borrower, although this is highly unusual.
The guarantor will be asked for evidence of their own income. They may also need to provide proof they can pay the entire mortgage if the borrower cannot do so. This can be proved by way of savings, or even using their own home as collateral.
Most people will ask a family member to be the guarantor, which has huge benefits. However, it can lead to disagreements down the line. Guarantors should only commit if they are genuinely willing to make the mortgage payments if necessary.
When to seek legal advice
Although it is possible to gain approval for a guarantor mortgage without legal support, it would be unwise to do so. Furthermore, most mortgage lenders will expect to see evidence that the guarantor has already sought the advice of a legal representative. Employing the services of a conveyancing solicitor from an established firm such as https://www.parachutelaw.co.uk/director-guarantee Parachute Law helps all parties. Sometimes people make the mistake of not seeking legal advice, simply because it’s an agreement between family members. However, this may be even more reason to do things properly.
A guarantor mortgage is sometimes the only way a potential buyer can secure a purchase, whether it’s because of income, deposit, or credit rating issues. It usually involves asking a family member to be the guarantor, who will need to prove they can pay off the loan if necessary. Always seek legal advice, whether you are the borrower, or if you have been asked to be a guarantor.