Are you struggling to take out your first mortgage? Or are you a concerned parent, anxious to help your child onto the property ladder? A guarantor mortgage might be just what you need.
Guarantor mortgages are a way for parents and other relatives to help those who are struggling to take out a mortgage and buy their first home. They’re not as common as they used to be, with many lenders now providing joint borrower sole proprietor arrangements instead.
We’ll explain everything you need to know about guarantors and joint borrower sole proprietor setups in this guide.
What Is a Guarantor Mortgage?
Guarantor mortgages are loans which are secured against the property you’re buying. You have to put down a deposit just like you would with any other mortgage. They're usually repayment mortgages as they’re primarily taken out by first-time buyers. With a repayment mortgage, you pay back a bit of your mortgage balance each month, with interest.
The main differences between guarantor mortgages and traditional repayment mortgages are that, with a guarantor product, a parent or other relative guarantees to meet your monthly mortgage payments if you can’t. They’re assessed like borrowers but they don’t put up any assets as security, they don’t have to help with the deposit, they’re not updated in the same way as the actual borrowers and they’re not on the title deeds - they simply guarantee the monthly payments.
What Happens if You Default on Your Payments?
If you can’t meet the mortgage repayments, your guarantor will be asked to make up any shortfall, possibly the full monthly payments. If neither you nor your guarantor meet the monthly payments, then the lender could ultimately repossess your property.
The fact your guarantor won’t be on the title deeds of the property means they won’t have any ownership rights to the property, even if you default on your payments.
Who Can Be a Guarantor?
There are multiple lenders that offer guarantor mortgages for first-time buyers, but some have different rules about who can be a guarantor.
There are lenders that’ll allow the following people to act as a guarantor:
- Other relative
It’s important to note that some lenders will only allow guarantors who are either the parent, guardian or grandparent of the borrower.
Can You Be a Guarantor if You Have a Mortgage on a Property?
You can act as a guarantor for someone even if you have a mortgage on your main residence, however the lender will assess your - the guarantor’s - disposable income after any existing mortgage payments, as part of their overall affordability calculations.
Most lenders will ignore any buy-to-let mortgages that a guarantor has in the background, as they should be self-funding investments.
This is also true for joint borrower sole proprietor arrangements, which we explain below.
Joint Borrower Sole Proprietor Mortgage
Guarantor products are much rarer now. They’ve been replaced by a similar mortgage arrangement called joint borrower sole proprietor.
Joint borrower sole proprietor is more of a mortgage arrangement than a product. It's where 2 or more people that take out a mortgage are all considered borrowers but aren't all on the title deeds of the property.
The main difference between guarantors and joint borrower sole proprietor setups is that a guarantor isn’t considered a borrower – although they are assessed as such - they simply guarantee to meet the monthly mortgage payments.
Besides from that fundamental difference, they work rather similarly.
Let’s say a young couple want to buy a property. They can take out a mortgage which includes both of them and one of their parents.
If they take out a guarantor mortgage, the parent won’t be on the title deeds. The parent will be assessed like a borrower, but after that they’ll only be responsible for making the mortgage payments if the couple don’t. The guarantor also wouldn’t receive updates from the lender, like notifications that their product is coming up for renewal.
On the other hand, if the couple and one parent take out a mortgage as “joint borrower with sole proprietor” arrangements, they’ll all be equally responsible for the mortgage repayments but only the couple will be on the title deeds. The parent will be assessed as a borrower and will receive notifications from the lender.
Although joint borrower sole proprietor setups have effectively replaced guarantor products, the benefits remain the same.
The benefits of guarantors and joint borrower sole proprietor setups are:
- They can improve the overall affordability of the application – meaning you can borrow more
- First-time buyers are still eligible for the Stamp Duty exemption as the guarantor or joint borrower supporting the application won’t be named on the title deeds of the property
- Additional Stamp Duty won’t be charged even if the guarantor or joint borrower supporting the application owns a property already as they’re not going on the title deeds and won’t have any ownership rights
Who Are Guarantor Mortgages Suitable for?
Both guarantor mortgages and joint borrower sole proprietor setups are especially useful for first-time buyers, but not exclusively.
They both give the borrower the opportunity to improve the affordability of the overall mortgage application by having someone else support it. The better the affordability, the more money they can potentially borrow.
This means that either arrangements could help you if:
- You have a low income
- You want to purchase a property that costs more than lenders will give you on a typical mortgage
Joint borrower sole proprietor arrangements can also be useful if you’re looking to buy a rental property with someone and one of you doesn’t pay tax or doesn’t own a property already. If you take out a mortgage with this kind of setup for a buy-to-let property, the lender can assess the application based on both applicants’ incomes but only one applicant would actually purchase the property and go on the title deeds – the other would simply be on the mortgage.
If the person on the title deeds is the first-time buyer then they could benefit from not having to pay the additional Stamp Duty on second properties. Also, if that person is a lower or nil rate Income Tax payer then they’ll pay less Income Tax on the rent they’ll receive from any future tenants of that property.
Guarantor Mortgage Lenders and Providers
We’ve listed some of the bigger names offering guarantor mortgages or joint borrower sole proprietor setups below.
- Metro Bank
- Post Office
- Clydesdale Bank
The deals available differ from lender to lender. Our experts know where to look for the joint borrower sole proprietor arrangements and guarantor mortgage deals that’ll best suit your situation. Call us on 03304 332 927 or make an enquiry.