Guarantor mortgages

If your loved one doesn’t have a big enough income or deposit to buy a home, a guarantor mortgage could help. Your financial support (acting as a guarantor) can boost their affordability and reassure the lender that payments will be made.

Although a guarantor assumes ultimate responsibility for payments, you won’t own a share of your loved one’s home. It will belong just to them.

For home buyers who can’t raise a large enough deposit, or whose income simply isn’t enough, getting you to be a guarantor could be a solution.

Important - As with any mortgage, this is a loan secured against your home. If you can’t keep up with your monthly payments, you or your loved one may lose your home.

How does a guarantor mortgage work?

A guarantor mortgage functions much like a standard mortgage with monthly payments required over the course of the term. The main difference is how you secure the loan.

• For standard mortgages, the loan is secured against the property your loved one is buying.
• For guarantor mortgages, you can provide security in the form of savings, income or some of your own property’s equity.

Using your savings

If the mortgage is secured using savings, you put money into a savings account held by the lender. It works by a guarantor depositing 10% of the property’s total value into a designated savings account, which is then used in lieu of your loved one supplying a down payment.

The savings are held by the lender as security for the mortgage for a set period of time, normally five years. At the end of the fixed period, you will get your savings back plus any accrued interest, as long as your loved one has made their repayments each month.

Two types of guarantor mortgage that use savings as security are:

1. Family springboard mortgages
2. Savings as security mortgages

Using your property

When the mortgage is secured using your home, it will be used as collateral if your loved one is unable to make payments. The lender will try to find ways to resolve a difficult situation. But as a last measure, you will be asked to repay any debt if the home on the mortgage is repossessed.

Another option is a deposit boost, where you unlock money from your home with a small mortgage. The money released can go towards the deposit, giving your loved one more spending power.

A deposit boost is not technically a guarantor mortgage because the guarantor is not liable for future repayments. But it’s another way for loved ones to help with home purchases.

Using your income

An income boost could also be used to support your loved one’s mortgage application. Your income is not actually used to fund the purchase. It simply boosts the borrowing power of your loved one.

You will not be named as a co-owner of your loved one’s home. But you may need to contribute financially if your loved one misses monthly repayments in the future.

What types of guarantor mortgages are there?

Family springboard mortgages

With a family springboard mortgage, you put 10% of the home purchase price in a special savings account. Your loved one can also deposit up to 9.9% or nothing at all.

After a fixed period, if all mortgage payments have been made, the lender will return your savings plus any interest accumulated. You can help more than one loved one buy a home at the same time. And you can grow your savings in the process.

Due to the costs involved and inability to access savings for a length of time, family springboard mortgages don’t suit everyone. But they could be an option worth considering.

Joint borrower sole proprietor mortgages

Another solution is a joint borrower sole proprietor mortgage. It’s also known as a JBSP mortgage or income boost. It allows you to join your loved one on their mortgage to boost the amount they can borrow.

You agree to be jointly responsible for the payments without being listed on the property deeds. Your loved one becomes the sole owner, and you will avoid any hefty stamp duty bills if you move home in the future.

Gifted deposit boost

A deposit boost allows you to gift money to a loved one to boost their buying power. It works by taking out two mortgages:

• You take out a ‘homebooster’ mortgage, which releases money from your property.
• This money goes towards your loved one’s deposit, and they take out a first-time buyer mortgage.

If you own a property and want to help a loved one buy their first home, a gifted deposit boost could be worth considering. Your loved one could secure a lower interest rate thanks to the bigger deposit. And the balance of your loan doesn't have to be repaid until your loved one sells their property.

Could you be a guarantor on a loved one’s mortgage?

Anyone has the potential to be a guarantor on a mortgage, but it's normally a parent, family member or friend. There are some things you should consider first:

• If you and your loved one have bad credit, it might be more difficult to apply for a guarantor mortgage.
• If you're already acting as a guarantor and you want to apply for another mortgage or loan, this could affect how much you can borrow.
• If your loved one doesn’t keep up with payments, both you and your loved one are liable for missed payments.

Explore your options with Saga Mortgages

Saga Mortgages offers a range of ways to help boost the buying power of your loved ones.

We partner with Tembo – an award-winning digital mortgage broker – who could help you to achieve your family’s property goals. You’ll access friendly advice and hundreds of mortgage deals, which could save you money and boost your budget.

It doesn’t take long to see what might be possible for you and your family. Simply register your details and answer a few questions. You'll see personalised examples of products, costs and interest rates, and have the chance to discuss things further.