A guarantor mortgage is one in which someone else is liable to repay the loan in case you fail to make the repayment. A guarantor mortgage is a great option for people with little to no deposit, less reliable income, poor credit, or if you are facing other obstacles in borrowing.
Having a close family or parent acting as a guarantor may help you access better rates and more money; however, always remember that this type of mortgage carries risk. Therefore, it is important to always do your research.
What is a guarantor mortgage?
A guarantor mortgage keeps someone else’s property as the security so that the lender can sell this property in case both the borrower and the guarantor fail to make the repayment. This process reduces risk for lenders. However, some lenders also use cash instead of property papers as a special security holding.
If the borrower misses payment of the loan, then this security money will be used to pay it off. The savings account is still liable to receive interest and can be used to deal with the mortgage.
The guarantor will put the money into the account linked to the mortgage, which makes the monthly repayments cheaper.
Who can be a guarantor?
Lenders need confidence that they can rely on the guarantor for support, which is why they prefer them to be the parent. In certain situations, they can accept other close family members as well as be the guarantor.
The guarantor should be at least 21 years of age, have a good credit history, have assets, and have savings and property. Every lender follows their own criteria.
The guarantor need not be on your mortgage for the loan duration. If you make the complete payment in a fixed period of time or build up equity in the property, then you can talk to your lender to remove the guarantor.
Who might need a guarantor mortgage?
A guarantor mortgage will help you come on the property ladder in case you are struggling with a mortgage. You can opt for a guarantor mortgage if you have:
- bad credit history
- just started a new job
- a low income
- a low deposit
Risks associated with guarantor mortgage
Being a guarantor, you are legally responsible for the repayment of borrowers’ loans in case they fail to do so. If you also fail to make the repayment, you risk losing your prosperity and damaging your credit report. Therefore, it is necessary to take independent legal advice and think twice before deciding.
Are guarantors Checked for credit repo?
Guarantors are also checked for their credit reports; most lenders like to keep someone with a good credit score. After all, they will be responsible for the borrower if he fails to make the repayment. For a guarantor with a good credit score, there are better chances of getting a loan approved.
The lender does a credit search called “soft credit check” as it does not affect the credit score of the guarantor. These searches are not known to companies who look at files.
What if a guarantor fails to pay?
Such situations do not arise often as the lender thoroughly checks the credit background of the guarantor’s finances. Although the financial situation of a Persian may change over time in such a case, the lender will first look for why the guarantor cannot make the repayment. The guarantor will be liable for the consequences as he is breaking the contract by not making the payment.
How do you apply for a guarantor mortgage?
There are a number of lenders, along with some high street banks, offering guarantor mortgages. The deal they offer depends on your as well as the guarantors’ circumstances.
You can apply to get a guarantor mortgage from the provider directly by applying online or by fixing an appointment. You will be required to provide the personal and financial details of the guarantor.
It is convenient to apply via an independent broker, having access to a wide range of lenders and also gives you better advice on what kind of mortgage you should go for.