Do I Need a Guarantor Mortgage?

What is a guarantor mortgage and why would I need one?

Guarantor mortgages are not what they used to be. When I started out as an Adviser, a guarantor mortgage was something that a lot of people took. For argument’s sake, if my son decided to buy a house and he didn’t have quite the income that he needed to buy it, I would be his guarantor.
I would be a party to that mortgage.

When the lender is looking at putting the mortgage together, they would then look at both our incomes. With my income added to his, there should be enough for him to buy his first house. That’s how a guarantor mortgage has always worked.

I get asked about guarantor mortgages quite regularly – probably weekly or fortnightly; but bizarrely enough, very few lenders do a traditional guarantor mortgage these days.

Today, this sort of arrangement is called a Joint Borrower Sole Proprietor (JBSP) mortgage. In that example, where I’m helping my son buy his first house, with a JBSP mortgage I’m not on the deeds to the property, I’m just on the mortgage.

That is the modern form of a Guarantor Mortgage. It has very similar rules and regulations to a guarantor mortgage – it’s just a modern update to it. We do have a whole podcast on Joint Borrower Sole Proprietor mortgages you can listen to.

Is it easier to get a mortgage if you have a guarantor?

It isn’t any easier or harder. In that example, where my son hasn’t got enough income, he can’t get a mortgage anywhere. Using my income would get him over the line.

A lender would just ask for my payslips and his. They would look at my liabilities and his liabilities – but it isn’t any harder or any easier to get a mortgage with a guarantor or on a Joint Borrower Sole Proprietor. It’s exactly the same process.

There is one slight difference with regards to the legal side of it. Many solicitors want the parent or other relative to take independent legal advice. It’s not normally expensive – it will maybe add a couple of hundred pounds to your legal bill.

The solicitor would act on the guarantor’s behalf to make sure everyone understands the ramifications of the Joint Borrower Sole Proprietor set up.

What are the types of guarantor mortgage?

The main type now is the JBSP. Within that, you can still look at a fixed rate mortgage, a discounted mortgage, a tracker rate mortgage or a standard variable rate. The actual rates are identical.

There isn’t a special set of rates for guarantor or Joint Borrower Sole Proprietor products. In that respect there is no difference.

I suppose one slight issue is the term. My son turns 26 this month and he might want a 35 year or 40 year mortgage. They’re all readily available depending on which lender you’re looking at. With a 40 year mortgage, you will pay more interest but the monthly repayments are cheaper. That could be helpful while he’s not earning as much and is a bit younger.

But a guarantor or Joint Borrower Sole Proprietor mortgage tends to go on the age of the guarantor. In my example, I’m 54, so the majority of lenders would want that mortgage completed by my 70th birthday. That would mean a 15 year mortgage, which is significantly shorter than my son could have on his own. So the repayments could be more expensive, depending on the age of your guarantor.

Will I be able to borrow more with a guarantor mortgage? How much could I get?

Possibly, because you’re using two incomes rather than one. There is a difference between the old guarantor system and the JBSP. In my previous example, the lender would just use my son’s income and I would be guarantor to make sure the mortgage is paid. With the JBSP, we’re actually using my income plus his income to assess affordability.

I’ve recently raised a Joint Borrower Sole Proprietor mortgage where the client was on a fast-track income. At the time of applying he earned £26,000, but in six months it should be £27,500. Six months on from that, it should be £30,000 and so on, as long as he passes some exams.

Within a very short period of time – he estimated three years – he would be on nearly £40,000 a year. He and his father have taken a three-year fixed rate mortgage, using their joint income to borrow more than he could have on his own.

So instead of buying a small terraced house, he’s bought a three-bedroom semi. It would have been well and truly out of his price bracket, but his dad’s income makes it affordable. And in three years’ time he won’t need his dad. He should be able to afford that mortgage on his own income. We will then remortgage that house and take dad off the mortgage – it will just be in his name.

Do guarantor mortgages have higher interest rates?

No, they have identical interest rates, and you’ve still got the same fixed rate, discounted rate, tracker rates or variable rate options. There’s no difference. It’s just about how much you can afford using the guarantor behind you.

Who is a guarantor mortgage suitable for? How do you qualify for a guarantor mortgage?

It’s purely down to income. For a First Time Buyer we would look at their income and liabilities to find out what they could borrow, and what impact it would have to add a family member to the mortgages. We would also be looking at their outgoings.

If the guarantor has a mortgage on their own house, that gets taken into account, as do loans, HP, finance, credit cards and credit agreements. It is a little bit more technical in that we need full details of both the applicant and the guarantor to work out what they can borrow. But with most lenders’ affordability calculations, it can be done quite easily.

What documents should I provide for a guarantor mortgage?

As I’ve just mentioned it comes down to income, assets and liabilities. So we’d need payslips and bank statements. We would also need ID verification for both applicant and guarantor. So we would need the guarantors’ payslips, bank statements, driving licences and ID.

We would need to know exactly what their commitments are too – loans, HP, credit cards, etc. It’s just like doing a joint application for the two people on the mortgage. Anything we need for one, we’d need for the other.

Who can guarantee a mortgage?

This is down to specific lenders. It used to just be parents, but a lot of lenders have now extended it to aunts and uncles, and I think there is one lender that would look at friends as well as relatives. Lenders are trying to make it as accessible as possible, right across the board.