Compare and Save on Your Move

Save 70% off the Cost of Your House Move Today!

Compare My Move Fact-Checking Standards

The Compare My Move team follows strict guidelines to ensure that every piece of content is accurate, trust-worthy and adheres to the highest standard of quality. Each article is expertly reviewed by members of our author panel before being published to promote accurate and quality content.

All Compare My Move articles adhere to the following standards:

  • Expertly reviewed - Our articles are reviewed by an industry expert with in-depth knowledge and experience of the article topic.
  • Data supported - All statistics, research and data must link or reference to the original source.
  • Accuracy - All research and data are taken from high-quality, trustworthy and authoritative sources.
  • Quality checked - Our content writers ensure every Compare My Move article is written to the highest of standard.

Guarantor Mortgages Explained

Written by Reviewed by Emma Lunn

20th Feb 2020 (Last updated on 19th Jun 2020) 7 minute read

A guarantor mortgage is when a family member agrees to act as a "guarantor." This means they agree to pay your mortgage payments if you’re unable to, and can be legally pursued for the debt. 

Some mortgage lenders ask for a guarantor if:

  • You only have a small deposit
  • They are not completely confident you can pay your mortgage

To help you better understand what a guarantor mortgage is and how it works, Compare My Move has worked with professional property finance journalists to create this guide and explain the requirements of a guarantor mortgage.

This article will cover the following:
  1. What is a Guarantor Mortgage?
  2. Who is a Guarantor Mortgage Suitable For?
  3. Who Can be a Mortgage Guarantor?
  4. What are the Different Types of Guarantor Mortgages?
  5. What Happens if You Miss a Payment?
  6. Can You Stop Being a Guarantor?
  7. Saving Money With Compare My Move

What is a Guarantor Mortgage?

A guarantor mortgage allows parents or grandparents to help their children get onto the property ladder. It can sometimes increase your likelihood of getting a mortgage or allow you to borrow more, especially if your financial circumstances are not ideal. 

Research by the Council of Mortgage Lenders discovered that, in 2014, over half of 300,000 first-time buyers who bought a home were likely to have had help from “the bank of mum and dad”. The number of new homeowners requiring help from families or government schemes is not decreasing, meaning guarantor mortgages still remain a viable option.  It’s important to note that the guarantor will not own a share of the house or be named on the deeds. They will only be liable for covering the mortgage repayments if the buyer is unable to.

Compare and Save on Your Move

Save 70% off the Cost of Your House Move Today!

Who is a Guarantor Mortgage Suitable For?

The number of people using mortgages to buy homes is quickly increasing, with research from UK Finance stating that the number of completed mortgages for homebuyers increased in October 2019 from 2.8% to 4.2%. However, not everyone can afford one or will be accepted. A guarantor mortgage is an option for those who will likely struggle to save for a mortgage deposit or struggle to get a mortgage application accepted. 

A guarantor mortgage will not be suitable for everyone and some lenders may only accept applicants over 21. We’ve included the situations where a guarantor mortgage would be generally suitable:

  • If you’re a borrower (or first-time buyer) with no deposit or a small deposit
  • If you have a low income
  • If you have a poor or non-existent credit-score
  • If you want to buy a home that costs more than the lenders think you can afford

Who Can be a Mortgage Guarantor?

Most lenders require a guarantor to be a close family member, such as a parent of grandparent. There's a strict criteria as it's high risk for a mortgage lender. Your guarantors saving's could potentially be held by the lender in a locked account or the lender could take charge over a portion of their property. 

 To qualify, a guarantor will usually need the following:

  • To be a homeowner
  • To have a certain amount of equity in their property
  • To have a good credit score
  • To have a decent amount of disposable income

You should take legal advice before agreeing to guarantee a mortgage. Some lenders insist on this. 

Compare and Save on Your Move

Save 70% off the Cost of Your House Move Today!

What are the Different Types of Guarantor Mortgages?

There is an increasing number of guarantor mortgages available, each with their own requirements and descriptions. In this section, we’ll take you through a few of the options available and how they differ from each other.  

Family Offset Mortgages

A family offset mortgage is when a family member puts their savings into an account linked to your mortgage. The value of their savings is then deducted from the amount of mortgage that you pay interest on, potentially saving you money. 

An example of this would be if your mortgage is £200,000 and your guarantor deposited £20,000 into the savings account, then you'd only pay interest on £180,000. A number of lenders offer this type of mortgage, with one example being the Family Building Society.

However, there are issues to consider, as with any guarantor mortgage. These include:

  • Your family member won’t earn interest on their savings whilst they’re held in the offset account.
  • Your guarantor may not be able to access their savings for a pre-agreed number of years or until the outstanding loan reaches a set amount. 
  • The lender may hold onto the savings for longer if you miss any mortgage repayments.
  • If the worst happens and your home is repossessed by the lender and sold, your family member’s savings could be used to recoup the difference if required. 

Savings as Security

This option means a family member becomes a guarantor by depositing 10 to 20% of the property price into a savings account. The money will then be held as security for your mortgage for a set number of years or until the amount you owe falls below a certain percentage of the property's value.

The guarantor can still earn interest on the money within the account – but the interest rate might be lower than alternative savings accounts.

Again, there are risks to consider before you decide to apply. For example, if you miss any repayments, the lender may hold onto the guarantor’s savings for longer. Also, if your property is repossessed and sold by the lender, they could make up the difference of what you owe by using the guarantor’s savings.  

Whole Loan or Shortfall Guarantors

Whatever type of guarantor mortgage you choose, it’s important for a guarantor to understand whether they are guaranteeing the whole loan or the shortfall.

“Whole loan” guarantors agree to cover the total mortgage amount. So if you borrow £100,000 as a mortgage, the guarantor would agree to cover that amount if you failed to pay your mortgage.

“Shortfall” guarantors only agree to cover a proportion of the mortgage. So if you needed to borrow £100,000 but the lender thought you could only afford £80,000, your guarantor would agree to cover £20,000. This type of guarantor mortgage is less common than a whole loan guarantor.

Property as Security 

This is when your family member puts up their own property as security for the loan. In the worst case scenario, if you didn’t pay your mortgage, the lender could repossess the family member’s home.

What Happens if You Miss a Payment?

If you never miss a repayment, your guarantor will not be required to do anything. However, if you do miss any repayments, the lender can ask your guarantor to cover the costs. 

These are the first few possibilities that may occur if you miss a mortgage repayment:

  • Your lender provides you with more time to repay what you owe
  • It charges you a fee
  • It asks your guarantor to make the repayments on your behalf

If you continue to miss your repayments, there could be more severe consequences for you and your guarantor. This could include:

  • An extension of the period of time your guarantor cannot withdraw from the savings account associated with the mortgage
  • Money from your guarantor’s savings account being removed 
  • Your house being repossessed
  • If money is still owed after the repossession, then the guarantor’s house could also be repossessed

It’s important to work out how much you can afford before applying for a mortgage regardless. But this is especially true for a guarantor mortgage as your failed repayments will then be passed onto your family member. In 2014, the Financial Conduct Authority introduced a cap of 4.5 times your income on the loan-to-income ratio for mortgage lenders, ensuring people can only borrow what they can afford. However, it’s still important for you to evaluate your own financial circumstances and to talk in-depth with your guarantor before committing to the agreement.

Compare and Save on Your Move

Save 70% off the Cost of Your House Move Today!

Can You Stop Being a Guarantor?

If you’ve signed the contract then you are legally required to complete the agreement and continue as a mortgage guarantor. Once contracts have been signed, you can not stop being a guarantor and the borrower can not switch guarantors. 

However, if the borrower’s financial situation improves or they pay off a certain amount of the mortgage, the lender may agree to release the guarantor. If you remortgage, and your new lender is happy you can afford the mortgage, you might not need a guarantor on your new mortgage. 

Saving Money With Compare My Move

Saving for a deposit can be difficult enough, but with our free service, you can ensure you continue to save even after you’ve secured the house of your dreams. If you’re currently saving for your next house move, then don’t forget to compare conveyancing, surveying and removal quotes with us by completing our quick and easy form to save money when you need it most. 

Zenyx Griffiths

Before Compare My Move, Zenyx once wrote lifestyle and entertainment articles for the online magazine, Society19 as well as news articles for Ffotogallery.

Emma Lunn

Reviewed by Emma Lunn

Freelance Personal Finance Journalist,

Emma Lunn is an award-winning journalist who specialises in personal finance, consumer issues and property.