Can a Guarantor Increase The Amount You Can Borrow On a Mortgage?

Yes, you can increase your borrowing as long as you have a family member or someone willing to act as a guarantor.

Essentially, they must be willing to take full or partial responsibility for your mortgage, which means they will have to make mortgage repayments if you are unable to.

How does it work?

If you can find someone to agree to support you with a guarantor mortgage, they will need to be named on the title deeds, even though they will not own a share of the property.

But they must agree to sign a legal document that makes them responsible for any mortgage repayments you cannot make. They will also need to put up some security, like a property or savings. Typically, the savings will be deposited as a lump sum into an account held by the mortgage provider.

They will be unable to draw on this cash for a set number of years, up to five years, or until an agreed-upon amount of the mortgage has been paid off.

Can anyone be a mortgage guarantor?

No. Most lenders prefer an immediate relative, such as parents or a sibling. A few may consider an aunt, uncle, or a close friend, but these are the exceptions rather than the rule.

There are also eligibility requirements, just like any mortgage.

Preferably, the guarantor will own or have sufficient equity in a property. Some lenders require a minimum of 30% equity. They will need to satisfy income requirements. They should also be able to prove they could take over the repayments if you are unable to.

A good credit rating will help convince the lender that they are a reasonable financial risk.

What are the downsides?

The worst-case scenario is that the guarantor could lose their property or security if the borrower defaults on their repayment and the guarantor cannot make up the shortfall.

This will have an adverse effect on the guarantor’s credit rating and could well lead to financial hardships.

This is why most lenders will insist that anyone considering acting as a guarantor seek independent legal and financial advice before agreeing to act as a guarantor for a mortgage.

Are there any alternatives?

Yes. Parents could gift a deposit (or part thereof) to help you afford a higher mortgage. The important thing to remember is that it is a ‘gift’ and is not expected to be paid back.

Another alternative could be an offset mortgage. Your parents could deposit a cash lump sum into an account with the lender. The amount held in the account reduces the interest you pay, making the repayments lower.

A family springboard mortgage might be a viable option. Typically, you might put up a 5% deposit, and then a family member deposits a further 10% into an account with the lender. This would open up lower interest rate mortgage deals to you.

A joint mortgage with a family member or friend will allow you to combine incomes and borrow more.

In closing, because of the potential financial ramifications, it is vital that you speak to an expert and get the best possible advice to help you make the right decision.