What is a guarantor mortgage and how do they work?

What is a guarantor mortgage?

A guarantor on a mortgage loan is someone who is willing to help you get on the property ladder. Traditionally, a mortgage guarantor would be a family member or friend, who acts as a 'back-up' in case the home buyer cannot make the mortgage payments. They are not named on the deeds of the property, so they won’t own a share of the property. Today, there are lots of different types of guarantor mortgages which allow friends and family to help you get on the property ladder.

For home buyers who are struggling to raise a large enough house deposit, or whose income simply isn’t enough to get the mortgage they need, asking a family member or friend to act as a guarantor could be the answer.

How does a guarantor mortgage work?

Technically, a guarantor mortgage works much like a normal mortgage, as long as you make each of your repayments each month. The key difference is how the loan is secured. With a standard mortgage, the loan is secured against the home you're buying. With a guarantor mortgage, the guarantor will be asked to offer up some collateral to the mortgage lender as security for the mortgage.

This is usually either savings, income or a chunk of their own equity that they have built up in their home to cover your debt if the need arises. There is generally a time limit for the bank to hold these as security. As long as you pay your mortgage on time, the guarantor’s security is released when the agreement expires.

But if you don't make your mortgage payments, your mortgage guarantor will be legally responsible for ensuring that the repayments are made, which could mean their savings, equity, or earnings will be used to make up the shortfall. If both you and your guarantor cannot keep up with payments, the lender can, in extreme cases, force the sale of the guarantor’s property or draw on the locked savings to clear the shortfall.

What are the types of guarantor mortgages?

Today, there are lots of different types of guarantor mortgages. They range from a loved one signing an agreement saying they will step in to repay the balance of your debt if you default, to the next generation of guarantor mortgages, where existing property or income is used to increase the buyer's affordability.

Below, we run over some of the types available from our panel of over 100 lenders:

1. Family springboard mortgages

First, let's look at family springboard mortgages. These work by a family member or friend depositing 10% of the home purchase price into a special savings account for a number of years. Buyers can normally choose to put down a deposit of up to 9.9% as well, or can avoid a deposit altogether. After the set time period, provided you've kept on track with your payments, the lender will return your mortgage guarantor's savings along with any interest that has accumulated in that time.

One thing to consider is that your guarantor won't be able to access their savings during this period, which could be several years. This means they'll need to be confident they won't need access to these funds during the term, whether for unexpected expenses or other financial opportunities.

You can read more on how family springboard mortgages work in our guide here.

2. Joint borrower sole proprietor mortgages

Another solution is to use a new type of guarantor mortgage loan agreement called a joint borrower sole proprietor mortgage. That’s a bit of a mouthful, so at Tembo we call this type of guarantor mortgage an Income Boost. A joint borrower sole proprietor mortgage allows your parents or helpers to join you on the mortgage to boost the amount of money the bank will lend you. They agree to be jointly responsible for the payments (that’s the joint borrower bit) without being listed on the property deeds. That makes you the sole proprietor and they avoid the hefty stamp duty bill when they move home.

There are other deals where parents can join their kids on the actual mortgage itself, however, an important consideration is that your parents or family members would be named on the property deeds with you. This means that they have inadvertently become second homeowners. The next time they move house and buy a new one, the tax man will charge them more in stamp duty.

Joint Borrower Sole Proprietor mortgages aren't offered by all lenders and building societies, but some big high-street names do offer them. Most recently, newer versions like Barclays' Mortgage Boost and NatWest's Family-Backed Mortgage have come onto the market. However, not everyone is eligible for these schemes. Applying for a mortgage you're not eligible for could damage your credit score and signal to lenders that you are in financial distress, making them reluctant to approve your loan. Working with an expert mortgage broker who specialises in guarantor mortgages can help ensure you apply for schemes you're likely to be approved for.

3. Gifted Deposit Boost

One of the stumbling blocks for a lot of first-time buyers is saving a large enough house deposit. With a rising cost of living, it's often impossible for a lot of renters to save what they need to put down as a down payment on their first home. This is where our Deposit Boost comes in.

A Deposit Boost is essentially a gifted deposit, where a family member or friend who owns a property releases money from their home to gift to you as a deposit, or to add to your current pot. It works by setting up two mortgages; a first-time buyer mortgage for you and a mortgage for your helper to release money from their property to gift to you.

The money raised by the guarantor's mortgage is the cash you will use for your house deposit. The balance of the guarantor's loan does not have to be repaid until they sell their property. With an enhanced deposit, you could get a mortgage with lower interest rates, making your monthly payments more affordable.

If you have family or friends who own their own home and want to help you own yours, a Deposit Boost is worth considering. Many families are keen to support their loved ones' journey to homeownership, and a Deposit Boost provides a structured way to do this. If you are apprehensive about talking to your family about money or getting an inheritance early, read our guide here.

Read more: What is a good mortgage interest rate?

You can read more about the benefits and risks of boost and guarantor mortgages in our guide here.

Can you use two guarantor mortgages?

You can normally only use one type of guarantor mortgage to boost your mortgage affordability. The exception to this is using an Income Boost and Deposit Boost together. This is because a Deposit Boost is technically not a guarantor mortgage - it's just a way to unlock money from a loved one's home using a small mortgage in their name. They can then gift the money unlocked to you for your deposit on a house.

They could then be added to your mortgage as a guarantor through an Income Boost, increasing what you could borrow as a mortgage. This is how two types of family-assisted schemes can be used together to help tackle the two sides of mortgage affordability: putting down a big enough deposit, and having a big enough borrowing capacity for the mortgage loan you need.

This is exactly what Tembo customer Liam did to afford his first home in London:

Is it hard to get a guarantor mortgage?

Generally, no — getting a guarantor mortgage isn’t difficult once you and your helper meet the lender’s criteria, but you will both have to satisfy stricter checks than a standard application.

• Income and affordability: the lender will assess whether the repayments are affordable for the borrower (and, where relevant, the guarantor).
• Credit history: both the borrower and guarantor usually need to pass a credit check.
• UK residency: many lenders require the guarantor to be UK-based.

Age and loan-to-value (LTV): guarantors are commonly required to be aged 18–75, and maximum LTV limits vary by product.

How much deposit do you need for a guarantor mortgage?

Some guarantor mortgages do not require you to put down any deposit because the guarantor offers their own savings as security for the home loan, such as with a Savings as Security mortgage. With other guarantor loan schemes, you may only be required to put down 5% of the total property price as a deposit, while others may require 10% or more. It entirely depends on what guarantor mortgage you go for. See what options are open to you today.

How much can I borrow with a guarantor?

Having a mortgage guarantor will only impact how much you can borrow if their income is added to yours. How much you can borrow for a mortgage is based on your total household income. Typically, lenders will let you borrow between 4 and 4.5 times your household income for a home loan, although some people can borrow more than this. If you add a family member's income to yours as a guarantor on the mortgage, this will increase your household income, helping you to borrow more for a mortgage.

Can a guarantor loan be declined?

Yes, it is possible that a guarantor loan will be declined. Both the home buyer and their mortgage guarantor will go through credit rating, affordability and eligibility checks by the lender before the loan is approved. If either you and your guarantor do not meet the lender's criteria, then they will decline your guarantor loan application. It can be difficult to know whether you will meet these requirements, as different lenders and mortgage products have different criteria. This is why working with a mortgage broker who specialises in family support mortgages can be helpful, as they'll be able to find the right guarantor mortgage for you.

Tembo is an award-winning digital mortgage broker who specialises in affordability-boosting schemes, including guarantor mortgages. We have already helped thousands discover how they could afford their dream home. To see what you could afford, complete your details online for free today.

Are guarantor mortgages a good idea?

Having a guarantor mortgage can be a great idea for those who are struggling to buy their first home alone, or are struggling to remortgage onto a new deal due to affordability. Having a guarantor on a mortgage can help you borrow more for a home loan, or increase your chances of being accepted if you have been rejected previously due to a small deposit, poor credit history or inconsistent earnings.

With a panel of over 100 mortgage lenders, our team of award-winning mortgage brokers can advise you on whether a guarantor mortgage is the best option for you and your family, as well as walk you through the other lending schemes out there. To get started, complete your details online to get a clear view of what your maximum buying budget could be and the options available.

What is the difference between a co-signer and a guarantor?

A co-signer is usually jointly responsible for the mortgage from day one, alongside the borrower. A guarantor typically only becomes legally responsible if the borrower completely defaults, acting as a back-up for the lender. In many guarantor arrangements, the guarantor is not named on the property deeds.

When can a guarantor be removed from a mortgage?

A guarantor can often be removed once the borrower has built enough equity and has a track record of on-time payments. This is commonly done by remortgaging into a new deal without the guarantor, often when the loan-to-value (LTV) falls to around 80–90%, depending on the lender’s criteria.

Does being a guarantor affect credit?

Being a guarantor can be recorded as a contingent liability by some lenders, which may reduce borrowing capacity for other credit. If the borrower falls into arrears and the guarantor has to step in (or the account is missed), this can negatively affect the guarantor’s credit record.

What are the risks for a mortgage guarantor?

The main risks include becoming responsible for missed repayments, a potential impact on future borrowing, and damage to the guarantor’s credit record if the mortgage falls into arrears. In a worst-case scenario, the lender may draw on locked savings or seek to recover money from the guarantor’s property, and many guarantors are required to take independent legal advice before the mortgage completes.