Getting on the housing ladder is particularly challenging. If you don’t have a big deposit or your income is low, a standard mortgage may be out of reach. A guarantor mortgage is one way around this.

If you want to know how they work, who can act as a guarantor, and what the risks are for everyone involved, please read on. This guide has got you covered.

How do guarantor mortgages work?

A guarantor mortgage is one where a third person agrees to cover your payments if you can’t. This person is the guarantor.

The guarantor doesn’t own a share of the property. They don’t live there. But they take on a legal commitment. If you miss payments, the lender can ask them to pay instead.

This gives the lender more confidence. It means they may lend to you when they otherwise wouldn’t. Some lenders will accept a smaller deposit if a guarantor is in place. Others will lend a higher income multiple.

Most guarantor mortgages are used by first-time buyers (FTBs) who need help from a parent or close relative. Some lenders also accept friends as guarantors, but this is less common.

Who can be a guarantor?

Most lenders have strict rules about who they accept as a guarantor. The key requirements are:

  • Good credit. The guarantor must have a clean credit record. They’ll be credit checked as part of the application.
  • Enough income. The lender needs to know if the guarantor can cover repayments if needed. Their income and outgoings will be assessed.
  • A property owner. Many lenders require the guarantor to own their home. Some will accept a guarantor who rents, but this is less common.
  • Not too old. Most lenders have an upper age limit for guarantors. This is often 75 at the end of the mortgage term.
  • A close relationship. Most lenders only accept family members, usually parents. Some also accept siblings or other close relatives.

 

Who can get a guarantor mortgage?

Guarantor mortgages are most often used by FTBs. They suit people who:

  • Have a small deposit
  • Have a low income
  • Have a short employment history
  • Are self-employed with limited accounts
  • Have a thin credit file

 

Some lenders also offer guarantor mortgages to borrowers with a patchy credit history. A guarantor gives the lender a safety net, which makes them more willing to consider complex cases.

For more on getting your first mortgage, read our guide on how to get a mortgage as a first-time buyer.

Do guarantors get credit checked?

Yes. The lender will run a credit check on the guarantor as part of the application. This leaves a mark on their credit file.

If you miss payments and the guarantor has to cover them, this can also affect their credit record if the payments are late.

The guarantor’s commitment will also show up on their credit file as a liability. This could affect their ability to borrow in the future, for example, if they want to remortgage their own home.

What are the risks of a guarantor mortgage?

A guarantor mortgage is a serious commitment. Both you and your guarantor need to understand the risks before you go ahead.

Damage to your credit score

If you miss payments, it affects your credit record. It can also affect the guarantors. This makes it harder for both of you to get credit in the future.

Changing circumstances

The guarantor agrees to cover payments for the full mortgage term. But life changes. They might retire, get ill, or have less money available. If their income drops, they may struggle to cover payments if necessary.

It’s important to think about what the next 10 to 20 years might look like for the guarantor, not just right now.

Access to your money

Some guarantor mortgages are linked to the guarantor’s savings rather than their property. In these cases, the lender may hold a portion of the guarantor’s savings as security. The guarantor can’t access that money until you have enough equity in the property.

This can lock up a large sum for several years. Make sure your guarantor understands this before they agree.

Risk to your property and relationship

If you stop paying and the guarantor can’t cover the payments either, the lender can repossess the property. In some cases, if the guarantor’s home is used as security, that could be at risk too.

Money and family don’t always mix well. If things go wrong, it can damage the relationship. Have an honest conversation before you ask someone to be your guarantor.

What happens if my guarantor is unable to make repayments too?

If both you and your guarantor can’t keep up with payments, the lender will take steps to recover what’s owed.

The first step is usually to contact you both and try to agree a plan. This might include a payment break or a change to the mortgage terms.

If no solution can be found, the lender may start repossession proceedings. The property would be sold to repay the loan. If the guarantor’s home is held as security, that could also be at risk.

If you’re struggling, contact your lender early. Don’t wait until you have missed several payments. The sooner you act, the more options you’re likely to have.

Free advice is also available through services such as MoneyHelper or StepChange. They can help you look at all your options without pressure.

Final thoughts

A guarantor mortgage can be a useful route onto the housing ladder. It can help if your deposit is small or your income doesn’t meet a lender’s standard rules.

But the risks are real. For the guarantor, this is a serious legal commitment. For you, it adds pressure to keep up with payments. Make sure everyone involved understands what they are signing up for.

Pepper Money works with brokers who can help FTBs find the right mortgage for their situation. You can find a broker through us today.