Parent Guarantor Mortgage
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Parent Guarantor Mortgage
Diarmuid Phoenix talks to us about parent guarantor mortgages.
Can parents be guarantors for a mortgage? Can you use your parents as a guarantor?
Yes, parents can be guarantors for a mortgage in the UK, including Buy to Let mortgages and residential mortgages.
It’s a fairly common way for parents to help their children or family members get on the property ladder, and secure better mortgage terms than they could get on their own.
Is it easier to get a guarantor mortgage with your parents?
It can be, yes. A guarantor would normally agree to cover the mortgage repayments if the borrower can’t pay. The guarantor may put up their own property as security, or guarantee a cash amount.
This obviously helps the borrower in several ways. It helps them borrow more money, get a mortgage with a smaller deposit or even qualify despite having limited credit history.
Is there an age limit when parents are mortgage guarantors?
Yes, there’s usually an age limit when parents act as guarantors, although it varies between lenders. The maximum age at application is usually between 70-75 years old.
Some lenders require guarantors to be under 80 by the time the mortgage ends, as well – so you need to know your way around the lenders.
What are the risks to parents of being a guarantor on a mortgage?
Being a guarantor on a mortgage is a fairly big responsibility for parents. It comes with a number of risks to fully understand before getting into it.
There’s a risk to their own property if it’s offered as a security, and it could potentially reduce their borrowing power if they decide to move house or borrow more against their own home. Being the guarantor for their children’s property could reduce or limit that.
The mortgage liability could also affect their credit score, because they’re going to be liable if their child defaults. There could potentially be a strain to family relationships if there’s any adverse situation with the child’s mortgage.
Do both parents and child need good credit for a guarantor mortgage?
It helps, but it’s not essential. You wouldn’t be able to get a mortgage if you had a really poor credit, but it all depends on the lender’s requirements. Having a guarantor with a good credit record can help if a child does have slightly adverse credit.
Can a parent and child get a guarantor mortgage with a gifted deposit? Do you need a deposit for a guarantor mortgage?
A parent and child can get a guarantor mortgage with a gifted deposit. It’s fairly common for parents to help First Time Buyers who might be struggling to save.
A gifted deposit is basically the parent giving the child the deposit without expecting repayment. A gifting letter is usually required, signed to confirm that the parent won’t have any legal say with the property.
The parent can then act as a guarantor on top of that, providing an additional layer of security to the lender. This combination makes the application even stronger. The deposit lowers the Loan to Value ratio, and the guarantor reduces the lender’s risk.
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What power does a parent guarantor have?
A parent guarantor’s powers are generally very limited. Their role is to guarantee the repayment, not control the property or make decisions about it. The guarantor can seek to recover any money they pay on behalf of the main borrower, but this is a civil matter between the parent and child.
If the guarantor’s own property is used as security, they may have some rights related to that, like consent for repossession. But the list of things they can’t do is considerably longer than the powers that they do have.
If a parent is a guarantor on a mortgage, how long are they liable?
If a parent guarantees a mortgage, their liability lasts typically for the entire term, whether that’s 25 years or more. We’re seeing much longer terms these days than we did years ago.
The lender can agree to release them earlier, but if a parent is going down the path of becoming a guarantor for their children, they need to expect to be in it for the long haul.
Do parents need to already own their own property to be a guarantor?
No, not necessarily. Owning a property does make the process easier, as it reduces the risk for the lender and opens up more options.
If they don’t, lenders need to rely solely on the guarantor’s income and their creditworthiness, which can limit eligibility. It could also limit the amount guaranteed for the mortgage. Property ownership is not essential, but definitely helpful.
How can a mortgage broker help here? Is there anything else to add?
Using the services of an experienced broker is always more beneficial than doing this on your own. We know our way around the market, the lending criteria and the latest exclusive deals.
We can save you time, money and effort in looking for a mortgage – and more importantly in this case, we’ll confirm whether or not a guarantor is actually needed.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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