What is a guarantor, and do first-time buyers need one? In this blog, we’re answering the top questions to help you understand why some buyers use a guarantor for their mortgage application.
If you’re looking to purchase your first home but struggling to save or meet lender criteria, then you may be considering a guarantor. Whilst it’s not a requirement that first-time buyers have one, a guarantor can increase your ability to get a mortgage at a better interest rate. However, there are several risks involved for the guarantor, so it’s essential to understand what this means before a decision is made.
What is a guarantor for a mortgage?
Having a guarantor for your mortgage helps first-time buyers who are struggling to meet their lender’s criteria. A guarantor will typically be a parent or a close relative who will become legally responsible for covering your mortgage payments in the unfortunate circumstance that you can’t or that you default.
When might having a guarantor be useful?
A guarantor can be particularly useful for buyers with:
- Little to no deposit
- Low or irregular income
- A poor credit history or score
- Difficulty passing lender affordability checks
In these cases, a guarantor agrees to cover your mortgage repayments if you cannot. Having a guarantor may mean you can:
- Access more competitive mortgage rate pricing, as there’s less risk for lenders
- Borrow more with your mortgage
- Potentially purchase a property with no deposit by using the guarantor’s savings or property as security
How does having a guarantor work?
Lenders want to ensure the following if you have a guarantor on your mortgage application:
- The guarantor does not legally own any part or percentage of the property
- They do not appear on the property deeds
- The guarantor must be financially stable, either owning a property themselves or having significant savings to evidence their ability to cover your mortgage
Some lenders may also require that the person who will be your guarantor has had independent legal advice before committing to the position.
Risks for the guarantor
Being a guarantor is a serious commitment, with a number of risks that must be carefully considered. These risks include
- Personal savings may be locked in a special account for years if your mortgage payments need to be covered
- If their property is used as security, it could be at risk if you default
- Their credit score may be impacted if they have to repay the mortgage
Consequently, it’s essential that whoever is considering being your guarantor for your mortgage fully understands the potential implications this can have.
I’m a first-time buyer, should I have a guarantor on my mortgage?
Whilst it’s not essential to have a guarantor, it can help you get onto the property ladder more easily. However, it’s important to weigh up the risks and decide whether it’s better to wait and increase your deposit size and credit score.
Why should I use a broker?
Our team of experts can help. We’ll gain a better understanding of your situation and discuss all the options available to you, helping you feel confident in your mortgage plans. You may find that you can access better rates than you expected to help you get started with your first home purchase.
To discuss your home move mortgage options or to ask us a question, get in touch on 0345 345 6788 or submit an enquiry here.
