As house prices have become more expensive and incomes have failed to keep up, it’s become harder for younger buyers to get on the property ladder. For this reason many lenders have designed mortgages that are designed to help the Bank of Mum and Dad help their children buy their first home.
The most common way for parents, guardians, friends, grandparents or other family members to provide support to borrowers is through a guarantor mortgage. This type of loan is exactly the same as an ordinary mortgage with the person buying to property owning it. However, they won’t have full responsibility for the mortgage – in the event that they can’t pay it.
If they find they’re short one month or more, with a guarantor mortgage, the person who provided the guarantee must step in and make the payment on their behalf. In some cases, if the primary borrower can no longer afford the mortgage, the guarantor is expected to repay the full mortgage. This could be done through sale of the property if funds are sufficient to cover the outstanding mortgage balance.
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Who can be a Guarantor for a Mortgage?
This depends on the lender. Some lenders specialise in offering guarantor mortgages and typically, they’ll be more comfortable being flexible about who provides a guarantee. Others are more restrictive and will insist on the guarantor being a parent, grandparent or close family member.
Some lenders allow the guarantor to deposit savings with them as part of the proof of the guarantee. Others will want to ‘take a charge’ over the guarantor’s property or home. This means that they have the security of another property to cover the mortgage if the primary borrower defaults.
In the worst case scenario, if the mortgage debt becomes bigger than the value of the guaranteed property (if house prices were to fall for example) this could mean the guarantor either has to take a mortgage to repay the rest of the loan they have guaranteed, pay it off using savings or by selling their own home.
What Types of Guarantor Mortgages are there?
There are other forms of guarantor mortgages, including family offset, family deposit and guarantor loans. Depending on how guarantors want to help, there are a range of options.
Bank of Mum and Dad
Some buyers are lucky enough to get help towards their deposit from parents, grandparents or a family member. This can be given in various formats.
This is the most straightforward way for the Bank of Mum and Dad to help kids get onto the property ladder. If they can afford to, parents are allowed to give children cash in line with government tax-free gift allowances. [https://www.gov.uk/inheritance-tax/gifts] This money can then be used as all or part of your deposit. However, in order for this to be acceptable to a lender, the person giving you the deposit will have to provide a written agreement that the money is being gifted to you and you are not expected to repay it.
Some parents have savings but don’t want to part with them just yet. That said, they may be sitting in an account earning next to no interest. There are a number of smaller building societies and one or two banks that will allow your parents or grandparent to deposit savings equivalent to your deposit with them and then they will provide you with a mortgage for the full value of the property you’re looking to buy.
Those who bought their family home several decades ago have typically seen house prices rise significantly and the value of equity they have in their homes grow. This may not be available in cash savings to deposit on account, but there are a few building societies that will allow parents to put up part of their own home (or any other property they own such as a buy-to-let or second property) as security when you are purchasing your first property.
This would mean the lender will take a second ‘charge’ against part of their home in place of your deposit, allowing you to borrow 100 per cent of the home’s value to fund your purchase.
To find out more or speak to one of our advisers about how we can help you realise your dream of owning your first home, contact us now.
Find Out Current Best Rates
|0.99%||Discount||2 years||4.75%||4.3%||2 years||£0|
|0.99%||Discount||2 years||4.99%||4.4%||2 years||£2149|
*APR = Annual Percentage Rate *ERC = Early Repayment Charge
*These figures are only illustrative. An assessment of your needs will be confirmed before a recommendation can be made. A Key Facts Illustration, which is personal to your circumstances, will be provided if a recommendation for a mortgage product is made.
In assessing your requirements, we do not use credit scoring and we can provide an accurate estimate of the amount of borrowing and the viability of your requirements, without effecting your credit score.
We avoid credit searches at the initial stages given that numerous credit searches will impact your ability to access cheap credit. It is clear that too many credit applications in a short period of time will impact your score and whilst it is important to shop around, formal applications for a mortgage can trigger rejections, as it gives the impression you may be desperate for credit. It is essential when making enquiries for any financial product, that the Company does not credit score you, until such time as you have agreed to make a formal application.
We can indicate your chances of approval prior to any application being made and where necessary, can obtain decisions in principle from lenders who do not use credit scoring.
Typically we assist customers who have a number of financial commitments and they are looking to understand how much they can borrow. A number of mortgage calculators are used on the Internet, which provide an indication of the amount of borrowing based on an income multiple. In reality, the calculation is much more complex and varies borrower to borrower and lender to lender. For example, a mortgage calculator may indicate a 4 times income multiple, but given the particular individual circumstances of the client and the lender’s chosen criteria and underwriting, the borrower may actually achieve 6 times income. In contrast, a mortgage calculator may indicate 4 times income, but due to an applicant having financial dependents, certain types of income, such as bonus or commissions, or other financial commitments, the specific lender may only allow 2.5 times income.
Clients we assist tell us from the outset, they would like a guarantee of the amount they can borrow and our knowledge of specific underwriting policies within lenders, allows us to accurately estimate, exactly what is available.
Importantly an initial discussion and agreement through us, does not impact your credit score
Capital Fortune are award winning London based mortgage brokers. We are based in the heart of London’s financial district near the Bank of England. We offer advice to first-time buyers, those moving house and to those looking to re-mortgage their existing deal to get a better mortgage rate.
We’re not tied to one lender so you can be sure we’ll get the best deal for you, from the bank or building society right for you.
We provide finance on both residential and Buy to Let property and can assist whether your looking to buy your first home, looking to re-mortgage or refinancing and restructuring your portfolio of buy-to-let properties. Our advisers are here to help.
We advise customers nationally from the Scottish Islands to the Isle of Wight and cover all the regions within the United Kingdom, including Northern Ireland.
Typically, we best assist clients with non-standard requirements and those we successfully help, generally face some sort of difficulty in the mortgage market. They seek not to be penalised for this difficulty and we look to secure them highly competitive, mainstream rates by asking our lenders to take an holistic view of their circumstances.
As expected, we offer all the usual mainstream products all standard mortgage advisers offer, but more importantly, we look to place cases of a more complex and specialist nature. This includes the self-employed, those with difficult income streams, contractors, unusual properties, foreign nationals, British ex pats abroad, overseas diplomats and those recently divorced.
We have long term relationships with nearly all the major UK lenders and have built strong trusted connections with lender underwriters at both a local and national level. Many of these key partners, prove the key to the success sometimes extending the parameters of their advertised lending criteria to assist our clients.
The promise of a rate is not the same as actually delivering a formal mortgage offer in the exact same terms. Our promise is our guarantee and many of our published independent client testimonials, confirm our ability to both deliver and help.
Alongside mortgage finance, our advisers will find you competitive life insurance, critical illness cover and income protection as well as being on hand to advise on a range of company and business insurance options.
Your Capital Fortune broker will be regularly on hand, not just through the process, but afterwards, sometimes, when you may need us most. We don’t just want you undertake the one transaction with us but seek to build a long term relationship and many of our clients have been with us for many years.
We seek to ensure the best possible results for those who choose to use us.
We totally appreciate we are not right for everyone. There are a range of other mortgage brokers in the UK but we hope that on searching through our website, viewing our published rates and transparency, that you will obtain a clear sense of how we operate and how we will look to assist you obtain the most affordable and suitable deal.
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