Financing your first home
Guarantor mortgages
Many lenders now apply a guarantor facility to their standard mortgage range, which does not necessarily require you to be a graduate or professional. Other lenders market individual products called Guarantor Mortgages that might only be suitable for certain borrowers. Both work as follows:
If you don't earn enough to buy a property, a parent can step in and act as guarantor for the shortfall. Often, lenders then allow you to borrow 100 per cent LTV, meaning that you will not need a deposit as security.
Although with most guarantor mortgages your parent's name does not have to appear either on the mortgage agreement or the property deeds, they will still be jointly and separately liable for the loan. These mortgages must not be confused with a joint mortgage - this is where both names appear on the mortgage agreement and the property deeds.
The lender will want to satisfy itself that the parent has enough financial standing to cover either the whole debt or just the shortfall (which, will depend on the lender). This might include either existing property and assets, or income from a salary or pension. Some schemes will also specify that the non-guarantor party to the mortgage must be earning a minimum amount of income.
Most schemes work as follows: if you earn, say, £20,000 a year, you can borrow a maximum of £80,000 (based on 4 x income). If the property you want to buy is worth £130,000, you are faced with a shortfall of £50,000. To act as guarantor for this shortfall, your parent will have to prove that they can service a £50,000 debt, though some lenders will insist that they should be able to service the total debt of £130,000.
There are similar schemes that work differently because they focus primarily on your parent's income rather than your own. Such a scheme might, for instance, lend 4 x the parent's income plus the child's income. If the parent's income is a pension, their age might also be taken into account.
Different lenders will have different criteria that have to be met. Please see the bottom of this page for how to get advice based on individual circumstances.
You should also always look out for the fees, interest rates and charges that apply to any scheme.
As with all the other sections of FirstRungNow we stress that we have only described what might be possible and have used examples only to illustrate these points. These should not be taken as current lenders' schemes. It is imperative that you and your parents seek tailored financial advice.
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