The advantage of a guarantor mortgage is that it enables the client to get a foot on the property ladder.
It also lets them potentially obtain a greater loan amount as a result of the guarantor’s income and therefore puts them in a position to purchase a more desirable property than they would have been able to with a loan based on their own income.
The downside of a guarantor mortgage is the guarantor is liable for the whole mortgage balance and not necessarily just the part they are guaranteeing.
Jeremy Duncombe, director of Legal and General Mortgage Club, says offering to be a guarantor on a mortgage agreement should not be entered into lightly.
If the borrower defaults on their payments or breaches the terms of the mortgage agreement, the lender would look to the guarantor to take over the obligations, in accordance with the guarantee agreement.
In terms of the duration of the commitment required, Christine Newell, technical director at Paradigm Mortgage Services, points out that it may also not be possible to release the guarantor from their liability if the client’s income has not increased to afford the mortgage when it comes to remortgaging.
Another potential pitfall identified by Mr Duncombe is that the age of the guarantor could shorten the mortgage term available, plus taking on this commitment could effect the guarantors affordability if they need to purchase/remortgage.
“This could put a strain on the parent/child relationship and if defaulted then it will leave a bad credit mark on both their credit files,” he adds.
Dale Jannels, managing director of Atom, says that another consideration for guarantors is if there is more than one child, they may not have the financial capability to do this multiple times.
For parents concerned about how their children will cope with the commitment of a mortgage, Mr Jannels says that in most circumstances they have no rights over the guaranteed mortgage, even down to requesting information.
