Rock bottom interest rates, high inflation and low wage growth has meant that despite mortgage rates falling, many are sill struggling to save for a deposit or get enough income for a mortgage. However, if you are lucky enough to be able to call on parents or friends who can help, you may be able to access a guarantor mortgage or get a relative to boost the amount you can put down.

There are two routes to getting a parent or relative to help you onto the property ladder.  The more traditional guarantor mortgage helped those who would usually not have enough income for mortgage payments.  Now with raising a deposit often the bigger problem, there are new products that allow a relative to provide a percentage of the deposit in the form of savings. We run through the best options for tapping up the Bank of Mum and Dad

 

What is a guarantor mortgage?

 

A guarantor mortgage passes some or all of the liability for a mortgage onto another person, meaning you can get a home loan that is basically partially underwritten by someone else. As long as you maintain your repayments, they will not have to pick up any of the tab.

Typically this is aimed at those whose income is not high enough to match a mortgage lender’s criteria for their mortgage amount. It doesn’t boost your deposit and gain you access a better mortgage rate. A guarantor tends to be a parent but could be another close relative, grandparent or friend. A lender will use the income and any debt from the guarantor as part of the application, but they will not go on the property deeds and be listed as an owner.

 

The bank will want to see evidence that they could afford to cover your payments after all of their own outgoings, including their own mortgage, have been taken into account.  They will be contractually obliged to meet payments if the original borrower falls behind, dependent on indlvidual lenders this may been some form of charge will be taken on their assets, for example their home,  to make sure the lender can force them to pay.

 

By becoming a guarantor you are also taking on some risk in effectively locking up potential borrowing power that you may need in the future. It may also affect your ability to get a loan at a future date. A guarantor may not be released until the borrower has enough equity or has remortgaged onto another product.

 

Getting a guarantor mortgage and becoming a guarantor is a long-term commitment for both sides. You have to be sure that you will be staying in your property for a long time as some of these types of mortgages are not always portable. There is also a risk to a guarantor’s credit rating if the borrower defaults as this will show up on both the relative and the child’s file.

 

Deposit-boosting support from savings

A range of lenders offer mortgages for borrowers whose relatives who are willing to put some of their own savings towards the loan.

This helps bump up deposits and subsequently get improved mortgage rates. These types of deals could be more beneficial for a parent as the money they are setting aside can be earning interest. They also do not actually have to hand over a lump sum to their children as either a gift or a loan and can keep the cash themselves, they just must commit to locking it up while it is needed.

 

Using savings rather than being a guarantor also allows a parent more flexibility if they needed to change there own mortgage or take out further debt as there is no such link with the borrower. It also solves the problem of a parent opting to help out by putting money in and becoming a joint owner, which can lead to a capital gains tax liability if the home is then sold at a profit.

 

 

For more information please contact one of our One Stop Finance Team Below

 

 

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