Being a first-time buyer in this economic climate is not an easy or simple position. Houses prices continue to rise and, according to the new regulations from the Mortgage Market Review, lenders are now obliged to tighten their mortgage application procedures before consenting to lend potential borrowers money. To make matters worse, the guarantor mortgages, which were originally a helping hand to new homebuyers, are now heading toward extinction.
What Is A Guarantor Mortgage?
A guarantor mortgage refers to a type of loan where a close relative, such as a parent, could act as a guarantor on the mortgage loan. This means that if the new homebuyer should fall into financial difficulty and is unable to make repayments, the lender can pursue the loan guarantor for any outstanding debt.
The guarantor mortgage option tends to be popular among younger adults searching for a first home purchase because it means they are able to borrow more than if they apply for a standard mortgage. This is due to the fact that the guarantor is not only liable for the debt, but also that their income is taken into account and this means a great loan amount.
The obvious drawback is that the guarantor is placing themselves in a position where they will be pursued for a relative’s debt if the relative is unable to make repayments. Fortunately, it is possible for them to remove themselves from this situation at a later date if it is established that the borrower can cover the full cost of the loan repayments.
Considering The Lenders That Offer Guarantor Mortgages
Borrower considering using this type of guarantor deal will not have to choose from a smaller pool because of the different rules coming into account. According to the Newcastle Building Society, it was confirmed that they will be removing guarantor deals and following the footsteps of the Royal Bank of Scotland and NatWest who removed the guarantor option earlier this year.
One lender that continues to consider guarantor loan applications is Virgin Money. Virgin Money insists that the guarantor must be a blood relative of the borrower and requires acceptable justification of the reason why the guarantor is needed to take out a mortgage loan. For example, a buyer may be a young professional who is likely to have a salary increase within a few years; therefore, he or she will be able to support the mortgage in the long-term. Another example is that the guarantor is a freelance individual who wishes to be a guarantor for their romantic partner based on business reasons.
Choosing Guarantors By Different Names
Certain lenders will offer different types of mortgage deals which, while they are not quite a guarantor mortgage loan in the traditional sense, do involve an element of a parent assuming responsibility regarding the loan. Here is a mortgage loan alternative. This is designed to allow first- or second-time homebuyers who have minimal or no deposit to claim a loan of up to 100% of the property’s current market value.
In this Family Guarantee mortgage loan, the parent will offer to act as a guarantor for the mortgage amount over 75% loan-to-value. So, for example, if you are purchasing a residential property currently valued at £200,000 with a 100% loan-to-value mortgage, the guarantor would need to act as a guarantee for the last £50,000 on the loan. The guarantee takes the form of a charge on the guarantor’s current property and is capped so that the amount will not increase in size. A maximum guarantee period is ten years.
Guarantors are not pursued in the event of debt when considering a Family Guarantee mortgage loan; however, they are responsible for any shortfall if the property undergoes repossession or is sold. The amount they could be responsible for may be up to the maximum amount of the guarantee.
Similar schemes to the Family Guarantee mortgage loan at Aldermore Mortgage can be found at the Bath Building Society, the National Counties Building Society, and Market Harborough Building Society.