Guarantor Mortgages: How Family Can Help First-Time Buyers
Buying your first home is an exciting milestone, but the path to homeownership isn’t always straightforward.
If you’re dealing with a small deposit, low income, or little to no credit history, you might feel like the odds are stacked against you. A guarantor mortgage could be the solution that opens the door with one of the few lenders willing to offer this type of product.
What is a guarantor mortgage?
A guarantor mortgage is a type of home loan that allows someone else, usually a close family member, to agree to cover your mortgage repayments if you’re unable to.
It’s often used by first-time buyers who are struggling to get approved on their own due to affordability issues, a small or zero deposit, or limited credit history.
Unlike being a joint borrower, a guarantor won’t be named on the property deeds. They don’t own any share of the home, but they do take on a serious financial commitment. Their savings or property can be used as security for the loan, and if you fail to make repayments, the lender can pursue them to recover the money owed, so they are as responsible as the main borrower.
How does a guarantor mortgage work?
When you apply for a guarantor mortgage, your chosen lender will consider both your financial circumstances and those of your guarantor. If the lender is satisfied that your guarantor has enough income, savings, or property equity to back you up, they’ll look to approve the mortgage. Only a few lenders offer this now, so you would need a suitable lender that can consider this route.
The lender may require your guarantor to:
- Secure the loan against a portion of their property’s equity
- Deposit a lump sum (usually 5 to 20 percent of the property’s value) into a savings account linked to your mortgage
- Agree to cover some or all of the shortfall if you fall behind on repayments
This setup gives the lender reassurance that they’ll be repaid even if you run into difficulty. And for you, it could mean a higher borrowing amount, a lower interest rate, or even a mortgage with no deposit required.
Who can be a guarantor?
Most lenders prefer guarantors to be parents or close family members, although in some cases, friends or more distant relatives may be considered. To be eligible, your guarantor will usually need to:
- Be at least 21 years old
- Own their property outright or have substantial equity
- Have a good credit history and stable income
- Be willing and able to cover your mortgage if you can’t
In some cases, retired individuals can also be guarantors, provided they have sufficient income from pensions or other sources, or enough assets to meet the lender’s criteria.
Before agreeing to act as a guarantor, it’s strongly advised that they seek independent legal advice to understand their obligations. This is something most lenders require before proceeding.
Find out Your Options
Types of guarantor mortgages
There are a few different structures for guarantor mortgages, depending on how the security is provided.
Using property as security
Your guarantor allows the lender to place a legal charge on their home. If you default on your mortgage and the sale of your property doesn’t cover the debt, the lender could recover the remaining balance by enforcing the charge on your guarantor’s property. That’s why it’s essential they have enough equity, typically at least 25 percent.
Using savings as security
Some lenders offer products where your guarantor places money, often 5 to 20 percent of the purchase price, into a savings account held by the lender. The funds are locked away for a set period or until a specific proportion of your mortgage is repaid. If all goes well, the money is returned with interest. If not, some or all of it could be used to cover missed payments.
Family offset mortgages
With offset mortgages, your guarantor’s savings are used to reduce the interest charged on your mortgage rather than being held as direct security. While they won’t earn interest on their savings, you’ll benefit from lower monthly repayments.
Each of these options carries different levels of risk and commitment. It’s worth discussing them in detail with a mortgage expert at Kerr & Watson to figure out which, if any, is the best fit for your situation.
Products and lender criteria change constantly so what may be available today, may not be available tomorrow. As a result, it’s best to talk with a professional mortgage adviser who can take the time to understand your goals and make the necessary recommendation.
Pros and cons of guarantor mortgages
Advantages
- Get on the ladder sooner – No need to wait as long to save a larger deposit or for an increase income.
- Borrow more – Your guarantor’s backing may increase your maximum loan amount
- Help with affordability – If your income is low or unpredictable, a guarantor can tip the balance
Disadvantages
- Serious risk to your guarantor – They could lose savings or even their home if you default
- Possible family tension – Financial stress could affect relationships
- Limited lender availability – Fewer lenders offer guarantor mortgages compared to standard options
- Higher rates – Some guarantor mortgages come with a premium, especially if no deposit is involved
It’s vital to have honest conversations with your guarantor beforehand and ensure everyone is comfortable with the responsibilities involved.
Can you still get a guarantor mortgage?
While fewer lenders offer guarantor mortgages than in the past, there are still some products on the market. Some lenders brand these mortgages under different names like “family assist” or “family boost” but they work on similar principles.
You might also want to consider alternatives such as Joint Borrower Sole Proprietor (JBSP) mortgages, where someone is added to the mortgage but not the property deeds, avoiding stamp duty surcharges. These can be helpful if your helper would prefer to share responsibility for repayments rather than act as a guarantor.
Whatever your situation, the best way to find out what’s available is to speak to a knowledgeable adviser. At Kerr & Watson, we specialise in looking for tailored solutions for first buyers in all situations.
What happens if things go wrong?
If you fall behind on payments, your lender will usually try to work with you to resolve the issue. However, if arrears build, this will affect the borrower and guarantor, and they could take legal action. Depending on the structure of your guarantor mortgage, this could result in:
- Adverse credit on both yours and your guarantor’s credit file
- Your home being repossessed
- Your guarantor’s savings being retained or used to repay the debt
- A legal claim against your guarantor’s property
It’s a worst-case scenario, but it’s something all parties need to consider seriously before moving forward.
How Kerr & Watson can help
At Kerr & Watson, we understand that buying your first home is a big step and we’re here to make it as smooth and stress-free as possible.
Whether you’re just starting your property journey or you’ve already been turned down elsewhere, we can help you explore whether a guarantor mortgage is right for you.
We take the time to understand your individual circumstances and guide you through the pros and cons.
Conclusion
A guarantor mortgage can be a way to overcome the barriers many first-time buyers face. Whether it’s a lack of deposit or a modest income, having a trusted guarantor behind you could be the boost you need to secure your home.
That said, these types of mortgages are rarer now and come with responsibilities for both you and your guarantor. It’s vital to weigh your options carefully and get tailored advice before making any decisions.
If you’re considering a mortgage or want to understand your eligibility, contact us today for advice.
