Being a guarantor on a mortgage can be a daunting prospect, and more than often has hordes of questions surging through your head. Is it good being a guarantor? What do you need to be a guarantor? Can my partner be a guarantor? What happens if my guarantor cannot pay? Oh no, can you stop being a guarantor?! ARRRRGH!!!
Calm down… breathe.
As much as being a guarantor can be daunting, it can be a useful perk. You see, as a young first time buyer in 2020, securing that all-important first step on the property ladder is no easy feat.
Today, asking prices are touching all-time highs thanks to a sudden influx of motivated buyers and sellers, all of which is driving asking prices in one direction (and that isn’t down!). So as you can imagine, having a guarantor when shopping for a mortgage can come as a significant advantage for any buyer and allows them to secure their place on the housing ladder in record time. Question is though, are guarantor mortgages worth it? And, what do you do if you've already taken out a guarantor loan, but can't make payment? We mythbust this, and more about being a guarantor below…
After some specific information about being a guarantor on a mortgage? Use the menu below to navigate efficiently to the information you need.
- What is a guarantor? And what is a guarantor mortgage?
- Who can be a guarantor?
- Why may you need to be a guarantor?
- Is it good being a guarantor?
- HELP! I'm about to default on my mortgage & my guarantor can't pay!!
A guarantor is a person who agrees to cover the expenses of someone who’s taking out a loan. So, in the case of you being a guarantor on a mortgage, this would mean you’d be liable to cover their mortgage payments if they were to default. Think of being a guarantor as an extra wall of security to stop the borrower (most likely a friend or close relative) from entering mortgage arrears and potentially getting a black mark on their credit report.
Therefore, a guarantor mortgage is simply a mortgage where a lender secures their investment through a guarantor. If you’re the mortgage applicant, having someone who’s willing to be your guarantor can open your options both in terms of finance and property. A useful perk for first time buyers.
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But hang on - what's a springboard mortgage?
Essentially, springboard mortgages are a guarantor mortgage in disguise. While springboard mortgages also require a guarantor and come with the practically the same financial implications, they require a significantly larger level of commitment.
See, as well as accepting financial responsibility if the borrower fails to make repayments, Springboard mortgages require an upfront investment from the guarantor, which is used to offset the need for a deposit. Usually this is around 10% of the property purchase price, that a guarantor deposits into a bank account with the mortgage lender.
It's only after three to five years of punctual payments (when the LTV creeps under 80%) that these 'guarantor savings' can be released, so in that sense, it's kind of like a fixed term ISA. By this time, it's hoped the borrower has built-up enough equity in their house to remortgage onto a different product.
FYI: To make it even more confusing, not every bank uses the term springboard mortgage - for instance, Nationwide uses the term Family Deposit Mortgage and Halifax knows them as a Family Boost Mortgage, so don't be fooled!
Being a guarantor on a mortgage is open to almost everyone. Due to the trust required between the two parties with such an agreement, parents, spouses and even close friends are usually the ones being a guarantor. But aside from that, what do you need to be a guarantor on a mortgage? We list the most common requirements of a guarantor below…
Strong credit history – Being a guarantor is impossible without at least a slightly imperfect credit history. Think of it through the eyes of a lender. By being a guarantor, you’re essentially taking secondary responsibility for a borrower’s debt, so they MUST have confidence in you. A bad credit report that shows you’ve been late or failed to make repayments in the past is one way to make being a guarantor a non-viable option.
Be a homeowner – Although for some lenders this is not a must, being a homeowner can dramatically increase your chances of being a guarantor on a mortgage, particularly if your own property is fully paid off. This is because anyone with the homeowner title has already demonstrated, or are currently demonstrating, their ability to keep up with regular repayments on a large asset. Precisely what you’ll need to do as a guarantor if the borrower defaults on their mortgage. And in the event you can’t cover their payments, you’ve a house that could more than cover the cost.
A decent sized income – Income is one of the major determiners on whether being a guarantor on a mortgage is a viable solution for you. If you’re currently paying a mortgage on your own property this holds even higher importance because you need to comfortably be able to pay both mortgages, to qualify for being a guarantor. No lender wants you being a guarantor who can’t cover their payments because you’re too busy paying off your mortgage through a competitor.
Be aged 21 to 75 at the start of the loan – For lenders your age also plays an incredibly important part of being a guarantor. Why? Because it can largely determine the amount of risk associated with the loan. Typically, someone of working age will have a stable income, be no longer in education and even be a homeowner themselves – all of which increase the likelihood that the loan will be repaid in the event of default. But, that’s not to say age is the be all and end all. If the first number in your age is an 8 or above with an estate of millions looking to be a guarantor on a 55K terrace, then it’s likely lenders would make allowances.
FYI: In some cases, this added credibility could even make the borrower more attractive to lenders and increase their chances of securing a mortgage.
*This criteria may differ depending on the lender and the size of the mortgage. Being a guarantor also comes with its fair share of checks and referencing beforehand, so even if you meet the requirements above, you may not be accepted. If you’re interested in being a guarantor, your best bet is to contact your lender for their specific requirements.
Being a guarantor on a mortgage doesn't mean it can't fall through. Both struggling to pay?
Using a guarantor for a mortgage could prove to be a wise idea for anyone who’s…
• Got a poor or no credit history.
• Not been in their current job for that long.
• Has a low salary, or a decent salary but high expenses (We’re thinking of you London).
• Has no deposit, but wants to move.
• Is looking to buy a property that a lender thinks they can’t afford.
That’s for you to decide.
Whether being a guarantor is good or not depends on your situation, so while we can’t provide you with a ‘yes or no’ answer, we can educate you about being a guarantor on a mortgage.So that’s exactly what we plan to do - here’s the answers to a few FAQs about being a guarantor…
Is there a way to stop being a guarantor?
The short answer is no. If you, the guarantor, have signed on the dotted line and the loan has been issued, then there’s no going back. You’re now the guarantor on that loan until the term comes to an end. Lenders hold the power in deciding when you as a guarantor can be removed and the buyer can remortgage to another product. If the buyer misses repayments, a lender can extend this term by months, and even years.
If you’re at all worried that you’ll be asking this question, we’d suggest going down the springboard route. Unlike your standard guarantor mortgage that can span over a 25-year term, springboard mortgages typically last between 3-5 years, making the job of being a guarantor far less stressful.
* If you’re a borrower reading this, be mindful of the commitment being made by the guarantor. Someone who’s willing to be your guarantor on such a large purchase is someone you want to keep hold of.
Saying that, if you’re a currently being a guarantor on a mortgage and looking for a way out, here’s some of the few ways you could get out of a guarantor mortgage…
• If you as a guarantor pay off the mortgage in full, be this through savings or using another loan (If you do the latter, be sure to do your research!)
• If as the borrower you pay off the loan in full. There’s a variety of ways in which you could do this, but if you ask us the easiest would be to sell your house fast and use what cash you have left as a deposit towards another home. Preferably one you can afford without a guarantor.
• If the loan hasn't yet been issued. On the off chance, you decide against being a guarantor and the loan hasn't yet been processed, one quick phone call is all you need. Express to the lender how you no longer wish to be a guarantor and providing you catch them in time, you should cancel the loan.
• If the lender goes bankrupt. This is a bit of wild card we know, but in the event it does happen your payments may stop, allowing you to remortgage free of a guarantor.
Can you get a bigger mortgage if you have a guarantor?
Yes, in most cases this is true. Because of the added security a guarantor provides, lenders are typically far more open to offer a higher loan-to-value. A handful of lenders will even offer those using a guarantor for a mortgage 100% loan to value (i.e. you don’t have to put down a deposit!). This means you can spend more time house hunting and less time scrimping and scraping to get that deposit. Sounds good to us.
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Will being a guarantor affect me getting a mortgage?
No. Being a guarantor shouldn’t prevent you getting a mortgage or decrease the amount you’re able to borrow. The only instance where this would happen is if you’re called upon by the borrower to make repayments. The reason why is simple.
By being a guarantor, you (in the eyes of mortgage lenders) have inherited the debt, which in most cases where a guarantor is needed, is a significant amount of money. If you’re not able to subsidise the payments or reach an agreement with the mortgage lender (a payment plan, for instance), then this could drag you into financial difficulty. However, with the amount of background and reference checks done by lenders these days before giving a guarantor the green light, it’s highly unlikely this would happen.
Can being a guarantor affect your credit rating?
In a handful of instances, being a guarantor can affect your credit rating, both in a good and bad way. Intrigued? Read on…
You see, the actual act of being a guarantor shouldn’t affect your credit rating whatsoever, providing the borrower keeps up to their repayments. It’s only if the borrower defaults on their mortgage that your credit score is under threat. From here, you have two choices. Get behind on their repayments and see your credit score fall. Or, keep up with their repayments and preserve your existing score, or even in some instances, see it rise. Being a guarantor does come with its risks, and your credit score is just one of them.
What happens if my guarantor refuses to pay?
While if you refuse to pay or you’re unable to pay mean basically mean the same thing for lenders - missed payments - they don’t mean the same thing for the guarantor, so listen up.
If you refuse to cover any payments when you have the funds available, you are breaking the contract between you, the borrower and the lender, which you signed when you first agreed to being a guarantor. A decision that you would likely live to regret.
In first instance, a lender will always contact you either via phone, email or post in attempt to settle the debt. Chances are they also want to find out why you haven’t made payment, which is usually something a conversation over the phone can solve. Ask us and we’d always advise communicating with lenders over the phone. Doing so not only shows that you’re trying to work with them to solve an issue, but also means you’re able to get things sorted fast. No one likes sitting on the edge of their seat in angst of an email reply.
Choose to ignore their communications though and things start to get serious. Remember those assets you put down as collateral against the mortgage contract? Refuse to pay and your lender will have the LEGAL RIGHT to issue a court order against you to retrieve the debt. Yikes!
FYI: If you’re refusing to hold up your side of being a guarantor because you’ve fallen out with the borrower, don’t stay silent. Get on the phone and let the lender know your situation. Obviously, there’s no need to tell them your life story, but make them aware of what’s going on. Do so, and they may sympathise, which could mean they treat you in a similar way to a guarantor who can’t make payment, opposed to those guarantors who’re just point blank stubborn.
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What happens if your guarantor dies? (God forbid)
In such as sensitive situation, we’d encourage you to do some digging yourself. You see, how the death of a guarantor is handled will differ depending on the mortgage product and the lender. Usually debts are handled like ghosts - they remain active even after death. So, it’s likely the response you’ll get from most lenders will be something along the lines of, “ So sorry to hear for your loss, but…”.
This ‘but’ will mean a tossup between two things. You either have to find a new guarantor (lenders usually suggest the guarantor’s spouse) or the debt will be recovered from the guarantor’s estate. But crucially, this will only happen if you as the borrower cannot make repayments. Providing you’ve got a strong payment history, your lender should understand and guide you through how to rectify this issue.
To quote of Clive Dunn, “DON’T PANIC!”
Yes, if you and your guarantor cannot make payment on your mortgage, it’s a serious matter (there’s no hiding that) but is it the end of the road?
No. This predicament has a solution, various actually, so if up to now you’ve been scouring your screen with bated breath, stop reading, go into your kitchen and put the kettle on. To digest these solutions properly, it’s vital that you’re calm and relaxed – this goes for both borrowers and guarantors.
(Go on – make yourself a brew!)
Right, so now you’re more ‘in the zone’ and ready to digest these solutions, here’s how it’s going to work. Below you’ll see a list of steps of how to rectify this situation. Work your way through these step by step and don’t stop until you find the solution that works for you.
Let’s dive straight in at number one…
STEP 1 -Seek help from a family member or close friend
In times of need, our family and friends are the perfect first port of call. Not only do they have your best interests at heart, but they also understand all the ‘ins and outs’ of what you’re going through and how it’s making you feel, particularly if they sold you on Person X being a guarantor on your mortgage in the first place. Equally, they’ll understand the stress being a guarantor, in this instance, has put on person X and be willing to assist you both in any way they can. Covering your mortgage until you and your guarantor can get your affairs in order, can be the helpful boost you need to steer clear of a downward spiral of debt.
READ BEFORE STEP 2: If a family member isn’t able to help out, you could look at covering the payments by taking out another loan. Sounds crazy we know, but hear us out. By covering your guarantor mortgage with a smaller loan, if you do default it’ll be on a smaller loan which shouldn’t harm your credit score quite as much. Providing you pick the right deal, you could also incur less interest this way.
STEP 2 – Reach out to your mortgage company
Now you’ve done your best to rectify the outstanding payment on your own it’s time to open up to your lender and let them know your situation. . Remember your lender is there to help. They want their money as much as you wish you or your guarantor could have paid on time, so there’s a good chance they’ll work with you to come to a solution. A payment plan is often what they’ll propose, or switching your guarantor. FYI: Don’t hang about! Complete Step 1 & 2 quickly and it’s less likely your credit score will be effected.
NOTE: By doing this you're in effect notifying the lender that you are a high risk customer, so in some instances, particularly when time is concerned, you may actually be better having a peek at Step 3 before picking up the phone.
STEP 3 – Try for a remortgage
If, and only if, your credit score has not been affected should you go ahead with this step. Trying to remortgage with a low credit score is one of the largest school boy errors you can make, so take our advice, and DON’T DO IT! You’ll also need sufficient equity in your house (preferably 20% +) or another person who’s open to being a guarantor.
But, providing you tick off all of the above criteria, a remorgage could be a good bet. It could get you a better deal if since taking out your existing mortgage interest rates have fallen. This, coupled with your equity, could make your monthly payments more manageable and potentially allow you to eliminate the need for a guarantor altogether. The more equity in your property, the better the remortgage deal - you can remortgage at any time.
FYI: Don’t go sending off applications left right and centre. Every declined application will go down as a black mark on your credit file and decrease your score (i.e. your chance of getting accepted by the next lender). Be sensible and take it one lender at a time.
STEP 4 – Sell your house… fast.
We hate to be blunt, but if you’ve made it this far you’re running out of options. The bank of Mum and Dad can’t bail you out, your lender has no alternative solution and a tactical remortgage is off the cards - the only other viable way of neutralising your mortgage debt is through a good old fashioned property sale.
Although, by ‘old fashioned’ we don’t mean going through all the rigmarole of listing your property with an agent and waiting for a buyer to simply come along. As much as agents big it up, the open market isn’t a pleasant place to be, neither is it fast. A high priority when settling debt.
Thankfully though, as old fashioned as the property industry is (we hate to admit it, but it’s true), we place speed and efficiency at the heart of any property sale. In case you haven’t yet noticed, we’re a leading cash buyer of properties across England and Wales, with the ability to tie up your sale in just 7 days!
That's no joke!
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