Family Assisted Guarantor
A guarantor mortgage could be suitable if you’re looking to buy a property with:
- A low income: lenders will decide how much mortgage to offer based on your in-come – having a guarantor may enable you to get a bigger loan.
- A small deposit, or no deposit: you could borrow up to 100% of a property’s value with a guarantor mortgage.
- A bad credit score: having a guarantor might make a lender more inclined to offer you a mortgage.
- Little or no credit history: for example, if you’ve never had a credit card.
An independent mortgage broker can give you more in-depth advice on whether a guarantor mortgage is suitable for you.
What types of guarantor mortgage are available?
Over the last couple of years increasing numbers of guarantor mortgages have been launched, often with different but similar names. Below, we explain some of your options and how they differ.
Traditional guarantor mortgages
With a traditional guarantor mortgage, both you and a family member are responsible for the mortgage and the monthly repayments. This means that if you aren’t able to make the monthly repayments, your guarantor will need to cover them.
A mortgage lender will take into account both your and your guarantor’s incomes, to check that your guarantor could cover your repayments if you defaulted. This means that you might be able to borrow more.
If missed repayments meant that the lender had to repossess and sell your property, both you and your guarantor would be responsible for any shortfall if the property was sold for less than the amount still owed on the mortgage.
For example, if you owed the lender £150,000 but they were only able to recover £125,000 by repossessing and selling your property, you and your guarantor would be liable for the remaining £25,000.
If your circumstances change during the mortgage – for example, if your salary increases, or the value of your property goes up so that you can afford the repayments by yourself – your guarantor could be released from their responsibility.
Family deposit mortgages
With a family deposit mortgage, your family can offer their savings or property (or both) as security for your mortgage.
Savings as security
Some lenders, including Barclays and Marsden Building Society, offer mortgages where a family member deposits cash (typically 10-20% of the property price) in a special savings account.
The money is held as security for your mortgage for a set number of years, or until the amount you owe falls below a certain percentage, for example 75% of the property’s value.
Your family member can still earn interest on the money linked to your mortgage, although the rate might not be as good as they’d get with other savings accounts.
If you miss any mortgage repayments, the lender could hold on to your family member’s savings for a longer period. If the lender had to repossess and sell your property and received less than what you still owed on your mortgage, they could recoup the difference from your family member’s savings.
Property as security
Alternatively, your family member can provide a charge over their own home – typically between 20% and 25% of the value of the property you’re buying – as security for your mortgage.
Your family member will usually need to own a certain share of their property outright. This varies between lenders but can be between 25% and 60%.
In the worst case scenario, if the lender had to repossess and sell your property for less than the amount remaining on the mortgage, your family member could lose their home.
Family offset mortgages
With a family offset mortgage, such, your family member puts their savings into an account linked to your mortgage. They won’t earn interest on their money, but the amount equal to their savings is deducted from how much of the loan you pay interest on.
For example, if you took out a mortgage of £100,000 and your family member deposited £20,000 into the account, you would only pay interest on £80,000 of the loan, reducing your monthly repayments.
But there are downsides to this type of mortgage for your family member. While they’ll eventually get their money back in full, they might not be able to access it for a pre-agreed number of years, or until your outstanding loan reaches a set amount – for example 75% of your property’s value – which could take some time.
If you miss any mortgage repayments, the lender could hold on to your family member’s savings for a longer period. If the lender had to repossess and sell your property and received less than what you still owed on your mortgage, they could recoup the difference from your family member’s savings.
Joint Borrowing Sole Proprietor
How does a JBSP mortgage work?
A JBSP mortgage is designed to help people on ‘lower’ incomes to get support from some-one (usually a family member) who will add their name to the mortgage in order for their income to be used in the assessment. The aim is to essentially use more income to increase the maximum loan available.
As the person assisting in only on the mortgage and not the deeds, they do not pay the 3% stamp duty surcharge for second properties and have no rights over any equity in the property at any time.
Some options allow for up to 4 incomes to be used and go up to age 80 at the end of the term so this can provide further flexibility in terms of the people who are helping.
However, as with anything, careful planning is key to making it a success so please contact us for specialist JBSP Mortgage Advice.
