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Guide to guarantor mortgages

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02/10/2016
With a guarantor mortgage, either a parent or a relative agrees to guarantee your mortgage in the event that you fail to make the mortgage repayments.

 

 

Having a guarantor may also enable you as a first-time buyer to borrow more money than your income would usually allow, because your guarantor’s income (less any other financial commitments) is taken into account.

 

How do guarantor mortgages work?

 

If you earn £40,000 a year and want to buy a property worth £160,000, but your lender will only give you a mortgage of, for example, £120,000, that leaves you with a shortfall of £40,000.

So long as the guarantor’s income allows them to afford the monthly repayments for a £160,000 mortgage – and not just the shortfall – then they will usually be eligible to guarantee your mortgage.

Once you are comfortable with the idea of meeting the repayments yourself, without a safety net, the guarantor can be released from the agreement.

While having a guarantor allows you to get on the property ladder when you otherwise wouldn’t have been able to, having a family member enter into a legally binding agreement with you, should be treated with caution.

If you are considering the guarantor option, you should seek legal advice beforehand and bear in mind that there is a lot more at stake than just your finances.

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