Guarantor Mortgages


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Guarantor mortgages and becoming increasingly common due to the increasing gap between house prices and earnings and stricter lending criteria.  Many first time buyers are therefore looking to parents and relatives to act as guarantors  to the mortgage.  Many people struggle to find the typical 10% deposit and therefore are unable to take out a conventional mortgage.

Interesting Fact

If you divide the average house price by the average earnings, you get the 'Average House Price/Earnings ratio' and this is a key indicator of how much people are stretching themselves to get on the housing ladder.

The long term average has been around 3.5, but there have been peaks and troughs which have all coincided with housing booms and busts.  For example in 2007/2008 it peaked at around 5.5 and the average age of a first time buyer is now over 33!

Guarantor mortgages are a great idea if you firstly have parents that have some spare money, and secondly if they trust you to pay back your mortgage. Depending on what type of guarantor mortgage you take out, in an ideal world your parents need not be liable for any of the mortgage payments, if you stick to your side of the deal and keep up with repayments. However, guarantors can play a vital part in the mortgage process should you loose your job and can’t make the repayments.

How A Guarantor Mortgage Works

With a guarantor mortgage a parent or close family member can either cover the shortfall in the mortgage needed to cover the borrowers income or can cover the full mortgage amount. By covering the mortgage, or part of it, the guarantor is liable to make payments if the principal slips into arrears or defaults. For instance, if you earn £20,000 you might borrow £80,000. If the property you want to purchase is worth £130,000, there is a shortfall of £50,000 that the guarantor would cover. The mortgage lender will assess the guarantor's income, current mortgage and other financial commitments to ensure that they can cover the loan amount.

Who Are Guarantor Mortgages Useful For?

A guarantor mortgage is particularly popular with students who want to get on the property ladder as long as parents can afford to repay the loan. The parents would need either to show that their own mortgage is near to finishing or they have sufficient income. They are able to hold the mortgage in their child's name, acting as guarantor, or they can buy the property as a buy-to-let. Their son or daughter could then rent out rooms and the revenue generated should pay the mortgage.

Guarantor mortgages can also be ideal for graduates. Some banks will offer loans on the prospect of rising income over the next few years and much of the marketing is aimed at young professionals.

Many mortgage lenders now offer guarantor mortgages. As with any mortgage, it is important to compare rates, fees and other features. It is important that financial advice is taken before committing to a guarantor mortgage.

Our specialist mortgage advisers are experienced in finding the right mortgage in any situation. If you would like us to help you to find the best deal available for you or for help and advice, please click on the botton above and one of our experts will contact you. Alternatively, you can give us a call on 0845 308 1420.

Useful Links

>>> Mortgage Sharing
>>> First Time Buyer Mortgages
>>> Government Schemes
>>> Mortgage Calculators
>>> Interest Only Mortgages
>>> Mortgage Blogs - News & Articles

 

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