Guarantor and family-assisted mortgages

A guarantor mortgage is a home loan where a family member, usually a parent, agrees to cover the payments if the buyer cannot. The guarantor's income or property supports the application, which can help a buyer with a small deposit or limited income borrow enough to buy. The guarantor does not usually own any of the home.

The guarantee is a legal commitment, and lenders usually require the guarantor to take independent legal advice before signing. Some guarantees cover the whole loan, and others cover only part of it or last until the loan falls to a set level, so the terms differ between lenders.

A joint borrower sole proprietor mortgage adds a family member's income to the application, while only the buyer owns the home. The family member is named on the mortgage and is jointly responsible for the payments, but is not on the title, which can avoid extra stamp duty for a relative who already owns a home.

Lenders assess the income and commitments of everyone on the mortgage, and they often set an age limit for the family member at the end of the term. Joint borrower sole proprietor mortgages suit buyers whose own income is not enough on its own, and they can be remortgaged into the buyer's sole name later.

Some mortgages let a family member offer savings or equity in their own home as extra security instead of a cash deposit. Savings are usually held in an account with the lender for a set period, and released once the loan has been paid down or the period ends, if payments are up to date.

Using property as security means a charge over part of the family member's home. If the buyer falls behind, the lender can claim against the savings or the security, so the family member is taking a real risk. Those wanting to buy with no deposit at all can compare these options on the no-deposit mortgages page.

Lenders check the buyer's income, outgoings and credit history as on any mortgage, then check the family member too. For a guarantor or joint borrower, they look at the relative's income, other borrowing, age and credit history. For savings or property security, they check where the money comes from and the value of the property.

Family members who are retired or close to retirement may find the choice of lenders is narrower, because lenders look at income over the term. Each lender sets its own rules on who can be a guarantor, such as parents, grandparents or other close relatives.

Family-assisted mortgages are often arranged through brokers who know which lenders offer each type. The first-time buyer mortgage brokers page lists firms that arrange first-time buyer cases, including family-assisted ones.

The family member takes on a risk that the buyer will not keep up payments. A guarantor can be asked to pay, savings held as security can be lost, and a charge over a home can affect the relative's ability to remortgage or sell. These risks last until the guarantee or security is released.

Independent legal advice for the family member is usually a lender requirement, and it helps both sides understand what happens if things go wrong. Agreeing in writing how any payments made by the family member would be repaid can avoid disputes later.