Posted on February 4th, 2012 in All, Guarantor Information.
How does a Guarantor Mortgage Work
Broadly speaking there are 3 different types of guarantor mortgages. The most common is where the applicant does not have sufficient income to afford the mortgage yet in their own right. The second and third is where the applicant doesn’t has a big enough deposit available for typical lenders. In cases like these the lender can put a charge on a parents property or take charge of some of the parents savings on a temporary basis. These 3 options are explored further below:
Income Based Guarantor Mortgages
Typical examples of applicants where a
guarantor mortgage can help with those struggling for income are for perhaps those that have just left university or started a new trainee role. Other examples are new business start ups who have just become self employed. The main thing the lender will want is a clear plan where by the guarantor can be removed in the future and where the applicant has prospects of that proving their income and removing the guarantor in the future. With the income based guarantor the lender normally assesses the application based solely on the guarantors income. This means that the guarantor must have adequate income after their own expenses to support the mortgage.
Guarantor Mortgage with Property Charge
Another scenario where a guarantor can be used is where the applicant has adequate income but is falling short on the deposit. In cases like this the lender will take a charge on the guarantor’s property. Then if the applicant does not meet mortgage payments and the guarantor does not meet these either the lender can recover their costs and interest from the guarantors property.
Guarantor Mortgage Against Savings
Like the above example where the lender takes a charge on the guarantors property lenders sometimes hold the guarantors savings or an amount equal to what the applicant fee short on above a certain loan to value. This is useful for parents and grand parents who would like help their children get on the property ladder but retain ultimate ownership of their savings.
