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Guarantor / Family Assist Mortgages – how do they work?
It’s no secret that people are finding it increasingly difficult to get on the property ladder, as house prices climb and lenders tighten their criteria.
One solution is for parents or other relatives to support a family member to buy a home. The mortgage products involved are Guarantor Mortgages or Family Assist Mortgages.
What is a Family Assist Mortgage?
It’s fairly common for a young person not to qualify for a mortgage, either because their income is too low, their credit score is poor or they don’t have enough deposit.
A Family Assist Mortgage lets family members help a borrower get a mortgage by contributing some financial support. This works in one of three ways:
- Providing all or some of the deposit
- Putting up collateral to secure the loan – using savings as security, or equity in their own home
- Contributing a cash deposit, held in trust until the end of the loan or you reach a certain point of repayment
With this kind of support from family members, a borrower could qualify for a mortgage for 90%, 95% and even 100% of the value of the property.
What is a Guarantor Home Loan?
With a Guarantor Mortgage the family member ‘guarantees’ that the mortgage will be paid, by promising to meet the repayments if the borrower can’t.
The guarantee stays in place until you repay a certain amount of the mortgage – often around 20% of the property value.
Who can be a Guarantor?
Usually the Guarantor is a close family member – most commonly a parent. They will need to own their own home or have good levels of savings, have a good credit rating, and have sought legal advice.
How much can I borrow with a guarantor loan?
The amount you can borrow will depend on how much deposit you and your family can contribute, and how much you can comfortably afford to pay each month. The lender will look carefully at your specific situation to calculate how much it will offer you.
What are the benefits of a Guarantor Loan?
The key benefit is that a Guarantor Loan will help someone buy a home, who otherwise would not be able to. Without a mortgage they will have to pay rent elsewhere, so many people feel that it’s better to help the borrower buy a home with that money.
What are the risks of a Guarantor Loan?
There are various risks that will depend on the type of mortgage. If your guarantor is using a savings account or property as security and you fall behind with monthly payments, not only
could you lose your own home, but you’re putting the Guarantor’s savings and property at risk.
Another big challenge with this kind of mortgage is that lenders can base the term on the oldest person’s age. In other words, they might want a shorter mortgage as lenders prefer not to loan to people once they reach 75. This will make the payments higher and could make the mortgage unaffordable.
Are there any other options to help me get a mortgage?
If a Family Assist or Guarantor Mortgage aren’t for you, another option is a joint mortgage. While it’s possible to get a traditional joint mortgage with a parent or family member, if they already own a home it will mean they have to pay additional stamp duty.
First Time Buyers are exempt from stamp duty, so a way to save money is with a Joint Borrower Sole Proprietor (JBSP) scheme. With a JBSP, the mortgage names both parent and child, but the property deeds only name the child. With this arrangement the parent is not liable for stamp duty.
Again, the age of the parent is important, and any adverse credit history could make approval tricky.
How can a Mortgage Broker Help?
There are so many potential options in the area of Family Assist, Guarantor Mortgages and JBSPs that it is important to seek advice. Everyone’s situation is different, and a Mortgage Broker can help you assess all the options.
Here at Spot On we have helped many families identify the most suitable way to buy a property together. Our mortgage advisers will spend time with you to understand your specific needs. We will then explore the mortgage market to identify suitable lenders and products, comparing interest rates, fees and criteria to recommend a good deal.
Spot On is authorised and regulated by the Financial Conduct Authority, so get in touch today to see how we can help.
We’re registered in England & Wales and our Principal is authorised by the Financial Conduct Authority. Contact our registered office today for an initial chat about how we can help you.
A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
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