Guarantor Mortgages are a way of securing a mortgage loan when you don't have a deposit or your credit history is putting lenders off. Someone agrees to act as guarantor for you, committing to make the repayments on your mortgage if you fail to do so. This is most commonly a parent or grandparent, which is why these products are often referred to as family-assisted mortgages.
A guarantor owns no share in the property purchased, nor are they named on the deeds. They simply sign a legal document stating that they agree to cover the mortgage repayments if the borrower cannot pay themselves.
To act as a guarantor, lenders usually require that you meet the following criteria:
A guarantor must possess sufficient assets to offer as part of the legal guarantee to the lender. Acting as a guarantor on a mortgage may mean you have to sign over a charge on your own property, giving the lender the authority to repossess it if repayments are not met.
If a guarantor doesn't own a property or has enough put away, cash savings can be offered as a guarantee. The agreed funds are put into a savings account with the lender and are released once a specified portion of the mortgage has been paid off. Typically, a guarantor is released from the mortgage agreement once the loan-to-value (LTV) has been reduced to around 80%, although it will vary depending on the lender and the applicant's circumstances. During this time, the guarantor will not be able to access the funds. They will usually, however, be eligible to earn interest on them.
Missing a mortgage repayment is never ideal, but with guarantor mortgages, it's especially important that you're aware of the consequences.
Each lender will have their own policy, but there are several things that could happen:
If you continue to miss repayments, the lender may take further action:
If you still owe the lender money after the property has been repossessed, they may go on to take further action to recover what they are owed.
Be honest. It's important that the borrower and guarantor are open with each other and consider all possible outcomes before entering into a contract.
Set boundaries. If you're acting as a guarantor for someone, it's important to remember that the property will be the borrower's home. Relationships could be damaged if you try to impose rules or have a say in matters beyond the mortgage agreement.
Seek professional advice. Financial matters can be complicated and entering into a mortgage agreement is a big deal! Formal agreements remove any grey areas and could save you from running into difficult situations in the future.
Think a guarantor mortgage might be the right option for you? Key Mortgage Advice can guide you through the process for no fee! We have offices in Southport, Preston and Garstang, or we can assist you over the phone if you prefer. You can find all of our contact details here.
Last month, we welcomed a new receptionist at Key Mortgage Advice Preston - Jane Davis. Now she's had a little time to settle in, we thought we'd give Jane the opportunity to tell you a bit about herself! Here's her story:
"Having a constant yearning to travel from a young age, I went to live in Israel at 21, much to my family’s horror. A year later I went backpacking around Asia and Australia, where I eventually settled for 15 years.
Due to my passion for travel, I spent most of my time in Australia working within the travel industry for independent Travel Agents and Airlines alike. I then made a career change when I moved to Sydney and worked in local government dealing mainly with town planning issues, which was surprisingly interesting in an ever-growing city such as Sydney.
Eventually, I decided to move back to the UK in 2006 for family reasons and continued working in the public sector for a local Council, where I worked for seven years.
At the age of 40, as part of my mid-life crisis, I decided to go to University part-time to study Law and after five long years, I graduated with LLB Honours. I briefly worked in a Solicitors office but decided quite early on that it wasn’t for me. I ended up moving in a completely different direction and spent nearly five years working for an Estate Agents, which for the most part I thoroughly enjoyed. As a people person, this really suited me, having lots of direct contact with customers.
I’m now looking to use those customer service skills gained over many years to bring a cheerful and professional manner to the reception desk at Key Mortgage Advice Preston.
I live on my own with my two daughters, enjoying lots of family time and socialising with friends. My passion for travel has now been reduced to mini breaks in Europe. Although my long-term plan is to retire to either France or Spain."
If you're considering using an independent mortgage advisor, head over to our team page to meet our friendly, expert mortgage consultants and mortgage processors. If you'd like to talk to someone about your options, get in touch or visit our offices in Preston, Southport or Garstang.
