A guarantor mortgage involves a third party — typically a parent or close family member — who agrees to be legally responsible for the mortgage payments if you are unable to make them. This arrangement can help borrowers who might otherwise struggle to get approved, such as first-time buyers with a small deposit or limited income.
The guarantor does not usually go on the property deeds, so they have no ownership stake in the home. However, they take on significant financial risk. Depending on the product, the guarantor may need to secure their own property or savings against the mortgage. Some lenders offer family offset arrangements where the guarantor's savings are held as security for a set period.
Guarantor mortgages can enable you to borrow a higher amount than you could alone, or to access a mortgage with a smaller deposit. However, both the borrower and guarantor need independent legal advice, and the guarantor should understand that they could lose their savings or home if the borrower defaults.
You earn £30,000 and can only borrow £135,000, but need £180,000 for your first home. Your parent agrees to act as guarantor, placing £45,000 of their savings into a linked account as security. The lender approves the full £180,000 mortgage. After 5 years of successful payments, your parent's savings are released back to them.
Key Points
- A family member guarantees the mortgage if you cannot pay
- The guarantor does not usually own a share of the property
- Can help first-time buyers access larger loans or smaller deposits
- The guarantor's savings or property may be used as security
- Both parties should seek independent legal advice