Guaranteed Legal, Medical and Business Mortgages
What is a guaranteed mortgage?
You may often hear people talk about a guaranteed mortgage. What does this mean? Can a Mortgage be guaranteed? Can you ever be guaranteed to obtain a mortgage?
Of course not. No one can be guaranteed to obtain a mortgage. Your chances of obtaining a mortgage are subject to a number of factors such as your income, credit history, and deposit size.
Where people in our industry talk about a guaranteed mortgage they will be talking about a mortgage where a guarantor has agreed to guarantee the mortgage to assist the buyer.
How does this work?
How a mortgage can be guaranteed
Often, a mortgage applicant, typically a first-time buyer, finds they are a little stretched to make lenders affordability for the amount of mortgage lending they require.
This is a problem, although the applicant may feel they can afford to pay the mortgage, limits imposed by the lender under mortgage regulation mean that the mortgage size required is just out of reach.
This is where the mortgage needs to be guaranteed.
When a mortgage is guaranteed, an additional person(s) known as a guarantor offers up themselves to assist in the application and supporting by agreeing to pick up some of the risk and become a ‘guarantor’.
In this way, the guarantor reduces the risk to the mortgage lender and the mortgage becomes guaranteed.
How a guaranteed mortgage works
The Guarantor puts themselves forward to provide additional security to the lender. In effect the guarantor is saying that if the applicant does not meet payments on the mortgage in full and on time. The lender has recourse to them as the guarantor to catch up payments.
Because of this risk to the guarantor the lender expects that the applicant will be able to afford the majority of the mortgage without the guarantor’s support. The guarantor although they could be at risk for the full size of the mortgage, are really only assisting to top up the lending.
What a guaranteed mortgage cannot do
Working with the guarantor assists where the applicant is not making sufficient income to support the mortgage on paper. A guarantor therefore has to have provable income to provide this support.
A guarantor cannot assist where the problem is:
- The applicant has a poor credit history
- The applicant has insufficient deposit*
- The guarantor does not have sufficient provable income
*Where the applicant has insufficient deposit, there are schemes available where the guarantor can put up capital to assist the deposit situation without putting those funds into the purchase
Guaranteed mortgage – what happens long-term
The intention is not for the guarantor to support mortgage indefinitely. The idea behind a guaranteed mortgage is that the applicant should eventually be in a position where they are earning sufficient to cover the entire mortgage without the help of the guarantor.
At that point, the lender can release the guarantor from their responsibility under the mortgage.
If you would like help with a guaranteed mortgage call us now on 020 8979 9684