Will being a guarantor affect my mortgage application?

Being a guarantor can affect your mortgage application if you are called upon to make repayments. This will be taken into account by lenders.

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By

Matthew Boyle

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It’s not just the threat of having to take on the loanee’s debt if they fall behind on their repayments, it could also affect your ability to be approved for a mortgage.

The mortgage application process has become far more stringent in recent years, now often including questions about loans you’ve guaranteed. These loans will be considered among all your other financial obligations before a lender makes a decision on your mortgage eligibility.

Will being a guarantor appear on my credit report?

Your credit report won’t be affected by your decision to be a guarantor, except in the case where you have to cover the loanee’s repayments.

In this scenario, both timely and missed repayments will be logged on your credit report as if you applied for the loan.

Provided this doesn’t happen, your ability to be approved for other types of credit won’t be affected by being a guarantor.

It’s only during mortgage applications that being a guarantor will be taken into account by lenders.

How much impact will this have on my mortgage application?

Individual lenders will each measure the impact of being a guarantor differently.

However, all of them will consider the amount of debt you’ve guaranteed and your ability to potentially take this on.

Being named a guarantor on a family member’s £500,000 mortgage will certainly concern lenders more than guaranteeing a £5,000 car loan.

Even so, you could still be granted your own mortgage, provided you could pay it off while taking on your family member’s debt.

Am I eligible to be a guarantor?

You don’t need any formal relationship with a loanee to be named as their guarantor. However, it’s only recommended you agree to do this for people you trust and care about. You can’t be a guarantor for anyone you jointly share financial products with (eg a joint mortgage or joint bank account).

Lenders will run a credit check on you to ensure you are financially equipped to be a guarantor. This credit check will cause a short-term hit to your credit score.

If you’re not considered creditworthy enough to be someone’s guarantor, it’s likely you won’t be approved for your own mortgage either.

Tips to increase your chances of mortgage approval

  • Ensure you can afford monthly repayments. Lenders will take a detailed look at your recent income and outgoings in order to determine whether you’ll be able to afford to make the mortgage repayments. Increasing your income and reducing your outgoings will therefore improve your eligibility. Remember, any loan you’re named as a guarantor on will be considered as potential future outgoings.
  • Improve your credit score. Your credit score is an assessment of your ability to meet financial commitments. It is primarily based on your borrowing history. This guide explains what you can do to improve your credit score.
  • Clear all debts. The lower your “debt to income ratio”, the more likely you’ll be approved for a mortgage.
  • Close unused credit cards. If you have access to credit from other sources, this could harm your chances of being approved for a mortgage, as it means you have the opportunity to get into additional future debt. The more debts you clear, the better.
  • Consider using specialist mortgage lenders. There are mortgage lenders who specialise in offering deals to applicants with a poor credit score. These companies offer far higher rates than traditional lenders though.

Bottom line

Being a guarantor won’t affect your credit report unless you have to cover any of the payments. If that happens, it’ll be treated as though they were your own missed payments, which will impact your mortgage application. When applying for a mortgage, the lender will take your own finances into account, along with your ability to guarantee the loan-recipient’s payments. If you can afford to take it on along with a mortgage repayment, you should be fine.

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