Guarantor mortgages are normally used where a buyer cannot afford a mortgage in their own right or cannot demonstrate their income in a way that is acceptable to a lender.
With a traditional guarantor mortgage the guarantor (normally a parent or close relative) effectively guarantees that the mortgage will be repaid if the applicant is unable to.
The guarantor normally has to have sufficient income to be able to afford the whole of the amount of the new mortgage and any commitments they have themselves will also be factored in by the lender when assessing whether they can afford it. In most cases guarantors need to be a home owner and a charge is normally put against their property by the lender as well. The guarantor and the applicant's homes are therefore at risk if repayments are not made on the mortgage.
No one should become a guarantor lightly and it is recommended that guarantors seek independent legal advice before entering into any such arrangement.
Generally speaking Guarantor mortgages are more commonly used where the applicant has little or no income of there own, rather than in situations where an applicant just wants someone to boost their borrowing power.
Guarantors also don't have to be registered as an owner of the property that is being purchased and they are also regularly used where the guarantor will not be living at the property. Lenders are reluctant to add someone as a full party to a residential mortgage where it won't be their main residence.
Also if somebody already owns a property and then seeks to buy another they will have to pay enhanced Stamp Duty which is an extra 3% of the purchase price. Therefore by not being an owner the enhanced stamp duty can be avoided.
As a result, traditional guarantor mortgages can offer a useful solution to some buyers.
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