Parent Guarantor Mortgage

Can you use your parents as a guarantor?

We get asked this a lot, but the concept of a guarantor on a mortgage is now quite outdated. In the past, parents could just guarantee a mortgage but not really be part of it. We don’t really see that so much now – it’s been replaced by something called Joint Borrower Sole Proprietor, which effectively works in a similar way as having a guarantor for the mortgage. 

Some lenders will insist that it’s a close relationship, like parents, where they are party to the mortgage but don’t actually own the property. The parents are liable for that mortgage if you don’t pay. That’s basically how it works nowadays.

Is it easier to get a guarantor mortgage with your parents?

It’s easier if you can get a mortgage in your own name without anybody else, but you would need the income to justify that. If not, using your parents as the second party is certainly easier than buying with a friend, for example. More lenders today would consider a mortgage with your parents.

Is there an age limit when parents are mortgage guarantors?

Yes. An application will be based on the age of the oldest person. Obviously, parents are older, and the term you’ll be granted will be based on their age. It depends on the lender how old they can be at the end of the mortgage, but it’s typically 70 or 75. 

That means, depending on the age of your parents, that a shorter term will be available to you than if you were borrowing in your own name alone. It’s not a major problem, but it does mean your monthly mortgage payments are likely to be higher. The older your parents are, the more that becomes a factor.

What are the risks to parents of being a guarantor on a mortgage? 

Basically you’re fully liable for the mortgage borrowing. When there are two parties involved, you’re ‘jointly and severally liable’ for the mortgage. That means that if the mortgage wasn’t paid appropriately, the mortgage company can come after either or both parties to recover their money. They usually go after the person that’s easiest to get hold of.

As a party on the mortgage, you might perceive yourself as being a guarantor, but if the mortgage payment isn’t made, they will pursue you for that.

Do both parent and child need good credit for a guarantor mortgage?

The short answer is yes. You would have to pass a credit score in the same way as for any mortgage. It’s not more onerous in this situation, but both would need to be deemed creditworthy by the lender.

Can a parent and child get a guarantor mortgage with a gifted deposit? Do you need a deposit for a guarantor mortgage?

You definitely need a deposit. As always, the more deposit you have available, the better. But that deposit can be gifted from the parent to their child – there’s no problem with that.

What power does a guarantor have in Scotland?

They have very little power, because with the way these mortgages are structured, they don’t own the property. They’re just liable for the mortgage.

Even if you’ve got an agreement that your child might pay the mortgage, if they don’t, you have to pay. There’s not really a lot of power or authority there.

If a parent is a guarantor on a mortgage, how long are they liable?

This links back to the previous question. You should think long and hard about taking this type of mortgage on, because you are liable for the whole time you’re on that mortgage. 

It’s worth thinking about what the exit strategy is. Sometimes parents do this kind of arrangement whilst their child’s at university. Then, when they get a job afterwards, they might remortgage to release the parent from that liability. But whilst you’re named on the mortgage, you are liable for the full duration of the mortgage.

Do parents need to already own their own property to be a guarantor?

It’s not essential, but we usually find that parents do. If they don’t own any other property, we may not need to do a Joint Borrower Sole Proprietor. They might just get a joint mortgage. That’s a possibility, but it’s something to discuss with your advisor.

How can a mortgage broker help here? 

With this arrangement it’s good to have an advisor who can really explain how it works. We talk through who’s liable for what, and make sure that, before you commit to anything, you’re happy with the arrangement. 

A big part of that is discussing the exit strategy – because this isn’t a long-term solution in most circumstances. Have a conversation about what plans could be put in place and what everyone’s expectations are. Having that broker as an independent third party is really helpful for most people.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON  YOUR MORTGAGE.