Once upon a time, a guarantor mortgage could have helped you if you didn’t earn enough to afford your first house or you had a family member you wanted to help get on the property ladder.
Most lenders have now replaced their guarantor mortgage products with joint borrower sole proprietor mortgage arrangements. These are arguably more efficient but overall they work in a similar way, enabling parents or other relatives to act as sponsors for family members buying their first homes.
What Is a Sponsor?
In the context of this article, a sponsor refers to someone supporting a mortgage application, whether they are a guarantor on a guarantor mortgage or a joint borrower within a joint borrower sole proprietor setup who has no ownership rights to the property.
The Topics Covered in this Article Are Listed Below:
- What Is a Guarantor Mortgage?
- Who Are Guarantor Mortgages Suitable for?
- When Isn’t a Guarantor Mortgage Suitable?
- Who Can Be a Guarantor?
- What Size Deposit Do I Need?
- What Is a Joint Borrower Sole Proprietor Mortgage?
- Does Having a Guarantor Increase My Chances of Getting a Mortgage?
- What Are the Age Limits for Mortgage Guarantors?
- What Obligations Does the Guarantor Have?
- Are Guarantors Credit Checked?
- Can You Be a Guarantor if You Already Have a Mortgage?
- Can You Be a Guarantor for a Buy-to-let Mortgage?
- What Do Guarantor Mortgages Cost?
- Can a Guarantor Be Taken Off the Mortgage?
- Can You Move House with a Guarantor Mortgage?
- What Are the Risks Associated with a Guarantor Mortgage?
- What if Your Guarantor Dies?
- What Happens if You Default on Your Payments?
- Which Lenders Offer Guarantor Mortgages?
What Is a Guarantor Mortgage?
Guarantor mortgages were primarily for first-time buyers. They allowed parents or other family members to act as a guarantor for the borrower, without being a named owner of the property. The guarantor agreed to meet the monthly capital and interest payments in case the borrower couldn’t. Guarantor mortgages were repayment-based loans. Repayment mortgages are where you pay back a portion of your mortgage loan each month, together with the interest.
Who Are Guarantor Mortgages Suitable for?
Guarantor mortgages were helpful for first-time buyers looking to get on the property ladder who would otherwise face issues with affordability criteria during the mortgage application process. Increasing affordability also meant the borrower could potentially take out a larger mortgage.
For these reasons, guarantor mortgages were useful for those on a low income or with a poor credit rating, as well as for buyers who wished to purchase a property that cost more than they could otherwise afford with a standard mortgage.
When Isn’t a Guarantor Mortgage Suitable?
Applicants for guarantor mortgages would often run into the same problem: the requested loan amount significantly exceeded what the lender would otherwise lend to the borrower with a standard mortgage. The assumption with guarantor mortgages was that the borrower would fully take over the mortgage at some point. However, if the borrower’s earnings were not likely to rise sufficiently, the lender may have considered the application to be too high risk.
Guarantor mortgages were also not suitable for borrowers looking for a boost in deposit. The guarantor only agreed to meet the monthly payments if the borrower couldn’t.
For those who would be comfortable sponsoring an application in a similar way to a guarantor, you may want to consider the alternative that we use nowadays: joint borrower sole proprietor.
Who Can Be a Guarantor on a Mortgage?
Various lenders had guarantor products for first-time buyers, although the rules differed from lender to lender. Some allowed a parent or guardian, a grandparent, a spouse or other relative to be a guarantor. However, other lenders only allowed the parent, guardian or grandparent of the borrower to be a guarantor.
It’s pretty similar with joint borrower sole proprietor. We explain this in detail below.
What Size Deposit Do I Need?
Although it was possible to find 100% loan-to-value guarantor mortgage products, most lenders required at least a 5% deposit. As well as the borrower, the lender examined the guarantor’s income as part of their affordability assessment during the application process.
What Is a Joint Borrower Sole Proprietor Mortgage?
Guarantor products have been replaced by a similar mortgage arrangement called a joint borrower sole proprietor. Joint borrower sole proprietor mortgages allow relatives to help the borrower apply for a larger loan by including their income as part of the mortgage application, without being included on the title deeds.
The main difference between guarantor mortgages and joint borrower sole proprietor is that with a joint borrower sole proprietor mortgage, the sponsor supporting the application is deemed to be a full borrower in all respects. This means all borrowers are equally responsible for the mortgage and receive the same updates from the lender, but the sponsor has no ownership over the property - hence joint borrower sole proprietor.
In contrast, a guarantor mortgage simply required the sponsor to take over monthly capital and interest payments if the borrower couldn’t.
The main benefit of joint borrower sole proprietor mortgages is the same as with guarantor products: it increases the overall affordability of the application. This means you can likely borrow more money and buy a more expensive house.
For both guarantor mortgages and joint borrower sole proprietor, any first-time home buyers on the mortgage application remain eligible for the Stamp Duty exemption, as the joint borrowing relative – often an existing homeowner - will not be named on the title deeds of the house.
An additional benefit of this type of mortgage is that if you’re supporting a first-time buyer’s mortgage application and you already own a property, neither party will be required to pay the Stamp Duty surcharge that’s applied on second homes.
Does Having a Guarantor Increase My Chances of Getting a Mortgage?
The short answer is yes. Although guarantor mortgages aren’t available anymore, their replacement - joint borrower sole proprietor - is becoming more attractive to people on all sorts of incomes with different circumstances. This is because they allow the lender to consider additional forms of income for affordability, thereby increasing your maximum borrowing and making it more likely you’ll be able to afford a property.
What Obligations Does the Guarantor Have?
A guarantor was required to sign a contract as part of the mortgage application in which they agreed to make the monthly payments if the borrower couldn’t. They didn’t need to provide security against the loan and were not on the title deeds of the property.
With joint borrower sole proprietor, all borrowers are equally responsible for making the monthly payments. The sponsor supporting the application doesn’t need to put up any security against the loan and is not on the title deeds of the property.
The main thing to bear in mind is that the person supporting the application has no ownership rights to the property.
What Are the Age Limits for Mortgage Guarantors?
The age limits for sponsors varies from lender to lender. It’s common to require that the guarantor or joint borrower supporting the application doesn’t reach retirement age before the end of mortgage period. In this case, the mortgage must be applied for before the sponsor is a certain age. Alternatively, the lender may require a shorter mortgage term, which could put meeting the monthly payments out of reach.
On the other hand, if the sponsor is on the same income in retirement as they were when they were working, then the lender will be more flexible. It ultimately comes down to affordability, your circumstances and the lender’s criteria.
If this is something you’d like to know more about, speak to one of our mortgage brokers on 0330 433 2927.
Are Guarantors Credit Checked?
Any sponsor – e.g. parent, step-parent, relative, etc. – supporting the mortgage application as guarantor or joint borrower is credit checked during the mortgage application process. Lenders will require a high score and a good credit history. A better credit rating will ensure there’s a greater likelihood that the application will be approved. The credit check performed on the sponsor is a hard credit check. Multiple hard credit checks can affect your credit score. Companies checking the guarantor’s or joint borrower’s credit history in the future will see this search query.
Can You Be a Guarantor if You Already Have a Mortgage?
You can be a sponsor for a family member even if you already have a mortgage on your home. The lender will evaluate the sponsor’s disposable income as part of their overall affordability assessment, considering the sponsor’s own mortgage payments. Buy-to-let mortgages are ignored as they should be self-funding investments.
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Will Being a Guarantor Affect You Getting a Mortgage?
We don’t really get guarantor mortgages anymore. However, acting as a sponsor on a joint borrower sole proprietor mortgage application can affect you getting a mortgage. The reason behind this is that, although you don’t have any right to the property, you’re still a borrower on the application which will affect how the lender assesses your affordability and what you can potentially borrow.
Can a Retired Person Be a Mortgage Guarantor?
Guarantor mortgages aren’t available anymore so no one – including a retired person – can technically act as a guarantor. However, a retired person can support a joint borrower sole proprietor mortgage, depending on their circumstances and affordability. Speak to an adviser on 0330 433 2927 to find out more.
Can You Be a Guarantor for a Buy-to-Let Mortgage?
As guarantor mortgages don’t exist anymore, you can’t be a guarantor for a rental property.
However, there are some lenders that may allow a joint borrower sole proprietor arrangement on a rental property. They come with a lot more caveats than when you get this type of arrangement on a main residence and what you can borrow is based on expected market rental rather than the income of the borrowers. This means that getting a joint borrower sole proprietor arrangement on a rental property wouldn’t allow you to borrow more. Instead, this kind of arrangement can offer certain tax benefits to certain people.
For more information on this, speak to an accountant or tax adviser.
What Do Guarantor Mortgages Cost?
Guarantor mortgages and the newer, more widely used joint borrower sole proprietor arrangement comes with the same typical costs associated with residential mortgages.
Some upfront fees can include:
- Application fees/product fees – you can either pay these up front or add them to the mortgage
- Property valuation fees
- Mortgage broker fees
- Solicitor/conveyancer fees
Can a Guarantor Be Taken Off the Mortgage?
Lenders set rules on when you can take a sponsor off your mortgage. They will look to take the sponsor off once the homeowner can support the mortgage on their own income. To do this, the homeowner would either stay with the same lender and complete a TOMP (transfer of mortgage property) or remortgage with a new lender.
Can You Move House with a Guarantor Mortgage?
You can technically port a mortgage with a sponsor, however whether it’s possible in your situation will depend on: the lender’s criteria, your affordability, the valuation on the onward purchase as well as some other factors.
What Are the Risks Associated with a Guarantor Mortgage?
If neither the homeowner nor you as the sponsor of an application meet the mortgage payments, you’ll be at risk of damaging your credit rating or even having the property in question repossessed.
What if Your Guarantor Dies?
Lenders have different policies when it comes to a relative or guardian dying while still acting as sponsor. Typically though, the lender will review your situation and go through your options.
What Happens if You Default on Your Payments?
If neither you nor your sponsor make your monthly mortgage payments and you default, your property will be at risk of repossession and you risk damaging your credit rating.
Which Lenders Offer Guarantor Mortgages?
No lenders really offer guarantor mortgages anymore. However, some of the more well-known names offering joint borrower sole proprietor agreements are:
- Bank of Ireland