What is a Mortgage Guarantor?
A Mortgage Guarantor is a person that can help you get approved by your Mortgage Lender/Broker. In some cases like my own, First Time Buyers can struggle to get approved for their mortgage if they have a limited or ‘bad’ credit history. Luckily for people like us, a Mortgage Guarantor will help to make your application appear more attractive and financially supported.
You may want to know… Who can become a Mortgage Guarantor?
A Mortgage Guarantor can be just about anyone (within reason). As long as you have a separate bank account from the First Time Buyer, you know them personally, trust them to make payment AND are willing to cover payment if they are unable.
To become a Mortgage Guarantor you also have to be at least 21 years old, have ‘good’ credit, and be able to show that you are financially stable. A good example of an ideal Mortgage Guarantor would be someone who is already a homeowner.
Whilst there are many Benefits of Having a Mortgage Guarantor e.g. your application being financially supported, it’s good practice to acknowledge some of the potential risks involved on the guarantor-side.
What are the Financial Risks of Becoming a Mortgage Guarantor?
It’s important that before someone becomes your Mortgage Guarantor, they’re aware of any financial risks involved. The following points show what’s included in becoming a Mortgage Guarantor so that you have the full picture. Remember to seek professional advice when conducting financial agreements.
- Being A Mortgage Guarantor Can Cost You Money
As you will be responsible for making repayments if your lender cannot, this could end up costing you money or leave you in debt. If you are unable to keep up repayments, as a Mortgage Guarantor, you risk having your own home repossessed. Tip: Before agreeing to become a Mortgage Guarantor, assess if you’re in a stable financial position where you can cover payment if one is missed, without leaving yourself in debt.
- Your Credit Score may be affected if you become a Mortgage Guarantor
Your credit score won’t be affected if the Buyer keeps up to date with repayments. On the other hand, if the borrower repeatedly misses payments and their account is closed by default, ultimately this will be reflected in your credit score. Tip: Consider your current credit report - can you afford to take the risk of becoming a Mortgage Guarantor? What happens to you and your lifestyle if you have a low credit score? Will this affect your relationship with the borrower?
- A Mortgage Guarantor may struggle to receive their own Mortgage
If you haven’t already brought out your own mortgage on a property or are considering a second mortgage, being a Mortgage Guarantor can restrict your own chances of being approved for a mortgage. This happens when brokers assess your income, outgoings, and debts. As you are a guarantor for e.g. a family member, you may have to pay off this prior to gaining your own first or second mortgage as any remaining debt accumulates negatively in your favor - typical! Tip: The best way to avoid debt is to stay on top of repayments. Encourage ‘borrower-lender’ communication and financial situation updates to avoid surprises. Consider these tips on How to Talk to The Bank of Mum and Dad [both perspectives].
Before you agree to become a Mortgage Guarantor, consider the following…
- Can you ‘vouch’ for the person asking you? Are they responsible?
- Can you afford to make the payment if they can’t?
- If they have a bad credit score, how do they intend to meet payments in a reliable manner this time to avoid pushing both of us into debt?
- Could the person use another alternative to getting help with their mortgage? (7 Ways Parents Can Help With a Mortgage.)
FAQs and More regarding Mortgage Guarantors
- Who is responsible for my mortgage payments if I have a Mortgage Guarantor?
You - the person who is seeking a property mortgage is responsible for mortgage payments. A Mortgage Guarantor is there to help meet any shortfall in payments - not to pay your mortgage for you.
- What kind of Mortgage Guarantor contracts are available?
Mortgage contracts available can be similar to the following example -
A mortgage broker lends you 100% of your property value although your mortgage guarantor is only responsible for 25% of this if you’re unable to pay.
So in this example of a Mortgage Guarantor Contract, the guarantor is limited to a certain percent of the property value.
- Can I remortgage my contract to lower my Guarantor’s financial risk?
Yes. Once you have gained enough property equity by paying down your mortgage plus any growth in value, you can remortgage. Remortgaging helps to cut-down monthly repayments and can save you money in the long term. Whilst there are many reasons to remortgage, cutting (financial) ties with your guarantor means you’ll own more of the property, be financially independent, and save them from falling into financial risk.
- Do I have to be related to my Mortgage Guarantor?
No. A Mortgage Guarantor must meet the following criteria; Be at least 21 years old, have built up a strong credit history either by owning their own home outright or currently on the property ladder, have a good and steady income (proves they can meet any defaulted payments) and idealistically, have at some point sought legal advice to discuss their suitability of becoming your Mortgage Guarantor.
Many brokers and lenders are offering Guarantor Mortgages as an option to help get you onto the property ladder. Contact Us Today and Get Advice from Mortgage Propeller on Guarantor Mortgages if you want to discuss this option further or have any questions.
Don’t think Guarantor Mortgages is the option for you? Consider these alternatives, 7 Ways Parents Can Help With a Mortgage.