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A guarantor mortgage allows you to secure a mortgage when you don’t have the funds or financial circumstances to put down a large deposit. A close friend, parent or another close family member guarantees to cover mortgage payments if you are unable to pay and this is secured against their property.
Whoever you choose to be the guarantor, they will not own a share of the property nor will they be named on the property deeds. It is simply a legal agreement to cover mortgage repayments in the event that you are unable to pay. It is a popular choice for parents who want to help put their children on the property ladder.
A family guarantor mortgage involves a type of guarantee that can be made to secure a property. A parent or other close family member guarantees to cover mortgage payments, and this is secured against their property.
A guarantor mortgage allows you to use the equity in your parents’ property or another family member’s property as security on a mortgage. Guarantors are limited to immediate family members, including parents, grandparents and siblings.
You can borrow up to 100% of a property’s value with a guarantor mortgage, depending on the type of mortgage chosen (traditional guarantor mortgages, family deposit mortgages, family offset mortgages and family link mortgages), with the most you can borrow in cash terms, £500,000.
This means that you will have to pay only a small deposit, or nothing at all, depending on how much of the property’s value you are borrowing.
A family member or even a friend can be your guarantor, but some lenders will restrict who you can choose. Some will only accept a parent, grandparent or step-parent, for example.
Your guarantor will also need to:
Depending on the terms of your mortgage, if you personally start to fall behind with your mortgage payments you may be given more time to pay or charged a fee. However, with a guarantor mortgage, another option is that your guarantor could be asked to cover these payments for you.
Should you continue not to make repayments, there could be more serious consequences. If you have the type of mortgage where your guarantor has savings ‘locked in’ to an account associated with your mortgage, your provider may take the funds from there.
In the worst case scenario, your home could be repossessed and sold by your lender. But if the property is sold for less than the balance of your mortgage, your provider will turn to your guarantor to meet this shortfall in funds, which could result in them losing some of their savings or having a debt claim put in on their own property.
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