What Are Guarantor Mortgages?
For 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.
A guarantor or Boost mortgage can help if you are:
- Struggling to save a large enough deposit while you rent or live back at the family home
- Not able to borrow enough money to buy the home you want because of your salary
- Single and finding that buying a house solo is an impossible task
In this guide
- Why are guarantor mortgages needed?
- What is a guarantor mortgage?
- How does a guarantor mortgage work?
- What are the benefits of a guarantor mortgage?
- What are the risks of a guarantor mortgage?
- Who can be a guarantor on a mortgage?
- Will being a guarantor affect me getting a mortgage?
- Who offers guarantor mortgages?
- Can I get a guarantor mortgage with bad credit?
- Income Boost
- Deposit Boost
Guarantor and Boost mortgages are a brilliant option for many buyers, but due to the fact they are more complex and not widely offered by mortgage brokers, they’re not very well known or understood. In this handy guide, we’ll take you through the risks and benefits, to help you understand how a guarantor (or a Booster as we call them at Tembo), could help you in your journey to homeownership.
Why are guarantor mortgages needed?
It’s no surprise first-time buyers are increasingly turning to their loved ones to get on the property ladder. Getting on the property ladder has never been harder. Over the past few decades, the UK has experienced sky-rocketing house price - research undertaken by Halifax shows that house prices increased by 207% since 2000. Pair that with stagnating wages, and a lack of affordable housing, and you’ll start to see why there are half the number of first-time buyers than there were in the 1980s and more people than ever are reliant on the
What is a guarantor mortgage?
A guarantor mortgage is a mortgage where another person (often a family member, or friend) acts as ‘back-up’ in case the buyer cannot make the mortgage payments. The guarantor will be legally responsible for the mortgage payments should the buyer be unable to pay, however they are not named on the deeds of the property, and won’t own a share of the property.
How does a guarantor mortgage work?
A guarantor mortgage gives a way for family members to use some form of collateral as security for a mortgage (including savings, property or earnings) to help a loved one buy a home.
- If the mortgage is secured against savings then the guarantor deposits money (typically between 5-20% of the house value) into a savings account that is held by the lender. They cannot access the money until the mortgage is paid off.
- If the mortgage is secured against the guarantor’s property, then the guarantor agrees that their property is used as collateral if the buyer is unable to pay.
What are the benefits of a guarantor mortgage?
Guarantor mortgages are great for people with a small deposit (typically first time buyers), or those on a lower income struggling to meet affordability requirements for the property they want to buy.
In some instances, you can get a 100% mortgage with a guarantor mortgage (although most lenders require some cash deposit). Think of a guarantor mortgage as a way for a guarantor to put up their own property or savings in lieu of a buyer’s deposit - this means a buyer can get a mortgage without having to put down anything up front.
What are the risks of a guarantor mortgage?
One of the most important things to note with a guarantor mortgage, is that by helping a less financially secure buyer purchase a property it means that a lot of the risk is spread to the guarantor. This includes:
- Risk to the guarantor’s property, as the lender could repossess the home (in the most worst case scenario).
- The guarantor won’t be able to access their savings held against the mortgage, until the mortgage has been paid off.
- The guarantor and buyer’s credit score will be linked. So, if someone fails to make repayments, this will affect both credit scores.
Who can be a guarantor on a mortgage?
Anyone can be a guarantor on a mortgage, but it's normally a parent, relative or friend. The role of the guarantor is to cover any repayments if you are unable to cover them.
Will being a guarantor affect me getting a mortgage?
If you are acting as a guarantor for a loved one and you want to apply for another mortgage or loan, lenders will take this into account when assessing how much you could borrow.
Who offers guarantor mortgages?
There are various high street banks and lenders that offer guarantor mortgages. These include Barclays, Kent Reliance, Leeds Building Society, Cambridge Building Society, Tipton Building Society, Aldermore and Cumberland Building Society.
Can I get a guarantor mortgage with bad credit?
If you have bad credit, it is possible to get a guarantor mortgage. However, if both you and the guarantor have bad credit, it might be a little bit more difficult. When lenders look at your mortgage application they will take into consideration what caused the poor credit and how long ago it was. Read our guide to credit .
Traditional guarantor mortgages aren't widely used any more. A much more popular option is an Income Boost, which works in a very similar way - read more about them below.
What is an Income Boost?
An Income Boost (otherwise known as a joint borrower sole proprietor mortgage) is a way for buyer’s to increase the amount they can borrow by adding a parent or family member’s income onto their mortgage application.
How does an Income Boost work?
An Income Boost works by combining the income of multiple borrowers to increase the amount that the buyer can borrow from a lender. Both the buyer and the Booster are legally liable for the monthly mortgage payments. So, if the buyer should be unable to pay the monthly payment, the Booster will then be liable for the payment. However, only the buyer is on the deeds to the property and the Booster has no ownership of the house.
Learn about Income Boosts
What are the benefits of an Income Boost?
By combining income sources, an Income Boost can increase a buyer’s borrowing potential so they can buy a more expensive property. Another benefit of an Income Boost, is that it can act as a temporary support for buyers when they first get onto the property ladder. If they get a pay rise, or can afford the mortgage by themselves, the Booster can be taken off the mortgage.
What are the risks of an Income Boost?
- The Booster and buyer will be financially linked. That means, if the buyer can’t pay the monthly payment, the Booster is legally obliged to cover the cost. If there are missed payments, this could have a detrimental effect on both parties' credit scores.
- This mortgage could impact potential future borrowing for all borrowers including boosters - any affordability assessments undertaken in the future will need to include this mortgage debt.
- The additional borrower (booster) will not have any legal rights to the property
- The additional borrower (booster) will be required by the lender to obtain independent legal advice to ensure they understand their obligations in respect of this mortgage.
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What is a Deposit Boost?
A Deposit Boost is a way for a buyer to increase their deposit, so they can either meet affordability requirements, access better interest rates with a lower LTV, or just get a big enough downpayment to be accepted by a lender.
How does a Deposit Boost work?
A Deposit Boost is a service consisting of two separate mortgages. The first is a mortgage taken out by a family member (known as a Booster) on their property. The proceeds are then gifted to the buyer to put towards their house deposit. The second is a mortgage for the buyer’s home.
How a Deposit Boost works
What are the benefits of a Deposit Boost?
Aside from the obvious benefit of the buyer being able to get a bigger deposit to put down on a property, the buyer is likely to be able to access better interest rates as they have a higher LTV.
Having a larger deposit, means that the buyer will need to borrow a smaller amount from the lender - so, if you’re limited by your income in terms of what you can borrow, having a larger deposit could help.
What are the risks of a Deposit Boost?
There will be debt against the Booster’s home. As with any mortgage, the Booster is at risk of repossession if they are unable to pay their mortgage.
At Tembo, we specialise in Boost and Guarantor mortgages.
Get a personalised recommendation when you fill out our plan, and discover how much you could afford with a boost.