Parent Guarantor Mortgage
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Meet the Author
Adam Nunn
Meet the Author
Jon Porter
Parent Guarantor Mortgage
Adam Nunn and Jon Porter talk to us about parent guarantor mortgages.
Can parents be guarantors for a mortgage? Can you use your parents as a guarantor? How does it work?
Adam: Just to clarify, a guarantor mortgage is old terminology. Lots of parents may be familiar with that phrase and might suggest it to their children – they might have done this with their parents years ago.
The modern equivalent to a guarantor mortgage is a Joint Borrower Sole Proprietor (JBSP) mortgage, so we’ll answer the questions today based on that.
One of the key differences is in the level of due diligence completed on the applicants, which does include the parent. The lender has a duty to understand all the applicants’ personal circumstances and, of course, the parent’s ability to help cover the mortgage. There’s also extra care taken to inform the parent of their responsibilities and the legalities of the transaction.
Is it easier to get a guarantor or JBSP mortgage with your parents?
Jon: Easy is probably the wrong word. The parent’s income is used to enhance the affordability for the borrowing, potentially enabling you to buy a more expensive property than you could afford by yourself.
However, there’s a lot for you and the lenders to consider. For example, how old are the parents? When are they retiring? Can their current income levels be used to sustain into retirement? At what stage will you be able to afford to remove your parents from the mortgage?
Are you in a career where your income will increase over time due to promotions or qualifications? This is where a broker gets involved, to help choose the right options available to you.
Is there an age limit when parents are mortgage guarantors?
Adam: Yes, each lender has different age restrictions. Some lenders are more risk-averse, and one in particular has a maximum age for parents of 75. If they’re 50 now, that means you can only have a 25-year mortgage, which could make the payments more expensive and possibly less affordable to you.
But there are many lenders for this type of mortgage, so we can review the market to find the most suitable solution. Some lenders will go way beyond the age of 75.
They consider whether it’s possible to use the parents’ pension income, which would be fairly guaranteed until death. Or, they will look at whether you’re in a career path with clear progression. A trainee lawyer, for example, would start on a basic salary but gains regular salary increases.
What are the risks to parents of being a guarantor on a mortgage?
Jon: A parent is jointly liable for the mortgage with their child. Therefore, if circumstances change and the child cannot afford the mortgage payments, the parents have to ensure the mortgage is paid.
Additionally, the mortgage can impact parents’ abilities with other credit arrangements. If they want a loan, car finance, new mortgage or even a phone contract, being a guarantor on a JBSP can affect their borrowing potential. Obviously, too, if you miss payments it’s going to affect credit profiles for both parties.
Do both parents and child need good credit for a guarantor mortgage?
Adam: Yes. Mortgage lenders will consider both parties’ credit history. Whichever lender you go to, you need to fit their credit policy. One of you might have good credit, but if the other has a less than perfect score, that could compromise or impact the lenders we can go to. We’ll recommend the most suitable options.
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Can a parent and child get a guarantor mortgage with a gifted deposit? Do you need a deposit for a guarantor mortgage?
Jon: The vast majority of lenders will need a deposit. A gifted deposit can be from a parent who also wants to support their child on their Joint Borrower Sole Proprietor mortgage. That’s perfectly acceptable.
The parents will have no financial interest in the property and generally cannot reside in the property if they’re gifting a deposit.
What power does a parent guarantor have?
Adam: This is a key consideration for the parent when agreeing to go on this type of mortgage. The parent will not own the property and therefore they have no powers or rights to the property. They’re purely there to provide financial support and stability.
They’ll be required to obtain independent legal advice before entering into such an agreement, to make sure they fully understand their responsibilities and the liabilities.
If a parent is a guarantor on a mortgage, how long are they liable?
Jon: They’re liable for the duration of the mortgage. If it’s 25 years, they’re liable for 25 years, unless the mortgage is redeemed early.
But for most families this is intended as a short-term arrangement, with the view that the child can take on the mortgage once it’s affordable. They then have the mortgage in their sole name. We do regular reviews and assessments for clients to see when it will be possible to get parents off the mortgage.
Do parents need to already own their own property to be a guarantor?
Adam: No, it’s not a necessity for parents to be homeowners for these mortgages. Some lenders will consider parents with other living arrangements, whether that’s rented, living with a partner or family, or even in tied accommodation through work.
The key thing is your parents’ committed expenditure. If they pay rent, that’s factored in. If they’ve got a mortgage, lenders will factor in the cost. There’s no set requirement from lenders that you must own a property.
How can a mortgage broker help here? Have you got anything else to add?
Jon: It’s vital to take into account all the aspects of a Joint Borrower Sole Proprietor mortgage, which is the newer version of the guarantor mortgage. You need to fully understand all the options and considerations.
As your broker, we’ll go through any potential issues with regards to age, term and career progression. Some lenders’ policies can be restrictive because of age, which can affect borrowing capabilities. Mortgage payments can be more expensive if it’s over a shorter term, but other lenders may consider longer terms to make a mortgage more affordable.
We go through the whole lot and see which is the best one for you – that’s how we’re so helpful in this area.
Key Takeaways:
- The term ‘guarantor mortgage’ is old terminology; the modern equivalent is a Joint Borrower Sole Proprietor (JBSP) mortgage.
- The parent’s income is used to enhance affordability, potentially enabling the child to buy a more expensive property.
- A parent is jointly liable for the mortgage. If the child defaults, the parents must ensure the mortgage is paid. This liability can also affect the parents’ ability to secure other credit (loans, car finance, etc.).
- In a JBSP, the parent provides financial support and stability but will not own the property and has no powers or rights to the property. They are typically required to obtain independent legal advice.
- For most families, the JBSP is a short-term arrangement with the goal that the child can take on the mortgage in their sole name once it becomes affordable. Mortgage brokers can assist with regular reviews to plan for this removal.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.