How does guarantor mortgage affordability work?
A guarantor mortgage is not always as simple as it seems to apply for and qualify for.
Although the guarantor doesn’t have the property and isn’t on the mortgage deeds, they are still assessed the same as applicants (credit score, income, age, and other commitments like loans, credit cards, or mortgages).
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Usually, the guarantor is a close family member with good credit history and a special savings account to qualify for the guarantor mortgage.
The family member deposits cash to help get their child or relation on the property ladder. We have guides on who can be a mortgage guarantor if you need specific advice on who can help.
A mortgage guarantor is often used for a first-time buyer or for if you have a bad credit score or other financial problems.
The guarantor’s savings or property would secure the loan for the mortgage broker.
Although the mortgage would be in the buyer’s name, not the guarantor’s property, if you cannot pay the monthly repayments or outstanding mortgage balance, the guarantor would be expected to pay this.
Monthly mortgage repayments would be discussed in the application process to ensure you can afford the cost and can differ on the type of guarantor mortgage that is taken out.
Mortgage brokers consider income and outgoings to determine how much the guarantor can afford.
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How are guarantor mortgages assessed?
The UK currently assesses guarantor income based on basic employment income, overtime and bonuses. Self-employment income is usually required (typically 2-3 years of trading).
If you want to know the maximum amount of guarantor mortgage borrowing, UK lenders will multiply your income by 4.
For example, a salary of £30,000 per year would result in a maximum loan of around £120,000.
Some lenders can lend up to 5x your income, putting more strain on the guarantor mortgage requirements. In most cases, the borrowers’ income is not included in any calculation.
The guarantor’s circumstances often limit the mortgage’s length (in years). This is because, more often than not, the main borrower is younger than the guarantor.
Mortgage brokers will limit the mortgage term to applicants who will be over 65 at the end of the term.
In other words, if a couple is 25 and their guarantor is 40 years old, they must limit the mortgage to 25 years to meet the retirement age of the guarantors. The monthly repayments can become more expensive if the term is cut by many years.
Some lenders understand this issue and will accept the mortgage term, provided the guarantor is gone within a specified time.
Keep in mind that lenders may limit guarantor mortgage terms at 25/30 years, regardless of age. This should be considered when calculating your monthly mortgage payments budget.
Read more: Who can be a mortgage guarantor?
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Guarantor borrowers don’t always need any income.
One of the significant benefits of a mortgage with a guarantor in some instances is that the borrower does not need to prove any income for the mortgage deal to go through.
This is an excellent way for students and newly self-employed people to climb the property ladder and become first-time buyers.
As lenders return to the market, mortgages with guarantor agreements are more accessible to first-time buyers and home movers who want to purchase larger properties. The right mortgage for you depends on many factors.
Our mortgage brokers may be able to help with independent legal advice too.
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We offer free mortgage advice, and lenders offer guarantor mortgages.
Contact us today if you have questions about applying for a mortgage without a guarantor or speak with mortgage providers lending great deals and advice. Use our guarantor mortgage calculator to get rates quickly online.
There are only a few UK mortgage providers that are lending on a guarantor mortgage, but we are sure to be able to help you.