How does a Guarantor mortgage work?

A short explanation of guarantor mortgages

Over the past decade it has become increasingly hard for first time buyers to step onto the property ladder. It is a struggle for many and with this being said more and more young buyers and taking out guarantor mortgages as it is the only available option for them.

A guarantor mortgage is a programme in which a relative such as a mum or dad will agree to keep up the mortgage payments if their child defaults. That is where the name guarantor comes in; it is a guarantee that the mortgage will still get paid if you cannot afford your payments yourself, this gives lenders peace of mind.

If you are planning on taking out a guarantor mortgage but have a low income you needn’t worry, the lender will usually look at your guarantor’s income and not yours which means even if you are on a low salary you will be able to get a higher mortgage. Something you may not have been able to lend on your own wage alone. This does not mean you will be given a huge mortgage and must ensure that you are able to afford payments each month as the payments will still be made out of your monthly wage and not your guarantor’s.

Usually when you apply for a mortgage you are entitled to 4 times your yearly income. As this will be going on your parent’s income it would be 4 times the highest earners income so say your mum earns £60,000 per annum then theoretically you could borrow up to £240,000. However the guarantor will still need to prove that they are able to cover their own outgoings as well and own mortgage payments as well as if needs must, paying yours.

The majority of lenders will be firm and insist that the guarantor can cover their own mortgage and all of yours to. But then some lenders just require that your parent/guarantor be responsible for the shortfall between what you can afford and your mortgage amount. So say you earn £20,000 and you can get a mortgage for £80,000 but your home costs £100,000 and you only have £6,000 saved, your guarantor would only need to pay the shortfall of £14,000 if you couldn’t keep up your payments.

As you get deeper into your mortgage and you find your wages increasing and overall you are earning a lot more on your salary than when you originally took out the loan, then you are able to take over and take full responsibility of the payments. This means your guarantor is released of any responsibility which can be beneficial if your guarantor is nearing retirement or perhaps has taken a cut in income.

There are many lenders out there who will agree to a guarantor mortgage for those wanting to join the property ladder. A independent good mortgage advisor will be able to steer you in the right direction and help you on your way as well as give you all the information you need and answer any questions you may have in regards to this.

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