Guarantor Mortgage – A Mortgage with a Financial Guarantor

In the United Kingdom, there are several ways to get a better mortgage interest rate. The key to a more attractive mortgage offer is to reduce the lender’s risk, which you can do, among other things, by improving your creditworthiness, putting down a larger deposit or using a suitable assistance scheme. Another option is to find a guarantor — this article explains how a guarantor mortgage works.

Credit risk assessment

Whether you are offered a mortgage, and on what terms, depends on how much risk the lender takes on. This is called credit risk and reflects how likely it is that the customer will repay the mortgage. As a rule, the higher the credit risk, the worse the mortgage terms — for example the interest rate, the flexibility of the agreement or the maximum loan amount.

The most important factors that determine the lender’s risk are the customer’s affordability, their credit history and the size of their deposit. Affordability is based on an assessment of the borrower’s finances and shows how much they can afford to repay. The deposit directly affects the LTV ratio of the mortgage, which compares the loan amount with the value of the property. A lower LTV lowers the lender’s risk and can give access to better rates.

Understanding credit risk is key to understanding how a guarantor mortgage works. A guarantor lowers the risk the lender takes on without you having to change your own finances or put more of your savings into the deposit. However, the lender will still assess you on your own income and credit history.

Guarantor Mortgage

A guarantor mortgage is a special mortgage product in which another person undertakes to repay the debt if the main borrower is unable to do so. This person is called a guarantor because they guarantee the mortgage with their assets.

The guarantor must agree to this voluntarily: by guaranteeing the mortgage they take on financial responsibility for it, but they do not become a co-owner of the property. They are not on the title deeds and have no ownership share in the home. If the borrower cannot pay and the guarantor does not cover the debt, the guarantor’s savings or home used as security could be at risk, so the guarantor should take independent legal advice before signing.

Because the arrangement benefits the borrower rather than the guarantor, the guarantor is usually a parent, grandparent or other close family member who helps a relative to buy a property. Legally, anyone can become a guarantor. In practice, lenders usually expect the guarantor to be a close family member, and some require it.

Scope of protection

Depending on the lender, the guarantor may not have to be liable for 100% of the mortgage. Some lenders accept a guarantee for a limited amount instead of the full loan, for example an agreed percentage of the loan or the part of the loan above a set LTV.

The second option is easier to understand with an example:

Let us assume that the value of the house is £300,000 and the borrower’s own contribution is £30,000. In this case, the LTV of the mortgage is 90%. In this particular situation, the lender considers 80% to be a safe LTV.

To reduce the lender’s risk, the borrower asks a guarantor to take responsibility for the part of the loan between 80% and 90% LTV (£30,000). This makes it possible to obtain the mortgage they need.

How does a guarantor mortgage affect credit risk?

A guarantor reduces the lender’s risk, which may help the borrower borrow more or get a mortgage they could not get on their own.

However, this does not mean that the borrower avoids a credit assessment. The borrower is still assessed on their own income and credit history, and their deposit still matters. The result of this assessment is the basis for the mortgage offer, and the guarantor’s support is taken into account alongside it.

How much a guarantor helps depends on the lender and on both your and the guarantor’s circumstances. If the guarantor’s own finances are as stretched as the borrower’s, their support may make little difference.

Guarantor Mortgage in practice

If someone in your family agrees to help, your guarantor will need to be part of the application and sign a guarantee. The lender will assess their creditworthiness and present the guarantee agreement. The lender may require the guarantor to take independent legal advice so that they understand the legal consequences before signing.

Lenders look at several things when assessing a guarantor. Firstly, the lender will usually check that the guarantor owns their home and how much equity they have in it. A property is a tangible asset that gives the lender real security. The lender also looks at the legal status and title deeds of the property to make sure there are no inaccuracies that would reduce its value. If the guarantor is still repaying their own mortgage, this will affect their affordability and the lender’s assessment.

Another factor is the guarantor’s age. Lenders that accept a guarantor may set a maximum age that the guarantor can reach by the end of the mortgage term. The limit varies by lender (some set it at 75), so a longer mortgage term may require a younger guarantor.

Release of the guarantor

Some mortgage agreements allow the guarantor to be released from financial liability once certain conditions are met. This may be possible once the borrower’s finances have improved or enough of the loan has been repaid for the lender to be comfortable without the guarantor. In addition, a history of late or missed payments may make a lender less willing to release the guarantor; release depends on the lender’s criteria, the mortgage terms and the borrower’s current circumstances — late payments reduce the lender’s confidence and may make it reluctant to release the guarantor.

If the mortgage agreement does not allow a release, remortgaging can be a way to remove the guarantor, but only if you can qualify for the new mortgage on your own.

Alternatives to Guarantor Mortgages

There are several alternative ways to get a mortgage with help from another person, each using some form of guarantee or security.

Joint Borrower Sole Proprietor Mortgage (JBSP)

A Joint Borrower Sole Proprietor mortgage combines features of a guarantor mortgage and a joint mortgage. In this arrangement, two or more people (the maximum depends on the lender) are named on the mortgage and are jointly responsible for it, but only one of them owns the property. The lender can take both incomes into account, which may allow a larger mortgage.

Although the borrowers are jointly responsible for the mortgage, in practice they decide among themselves who pays the instalments — the lender does not give specific guidelines, and what matters is that the payments are made on time. However, each borrower is legally responsible for the whole debt, whoever actually makes the payments, so if a payment is missed, the other borrower should cover it to avoid the consequences.

A JBSP mortgage may seem quite similar to a guarantor mortgage, but it works on different principles. In some respects it is more flexible than a guarantor mortgage, which can make it a good alternative.

Family deposit mortgage

A family deposit mortgage is a type of mortgage in which a family member places savings in a linked account as security for the mortgage (for example, 10% of the purchase price with some lenders). This money is not used to pay for the property or as the deposit; it is held for a fixed period set by the lender (for example, five years with some lenders).

The family members who provide the money do not become co-borrowers or co-owners of the property. If the borrower falls behind, the savings may be held for longer, and if the home is repossessed and sold for less than is owed, the family member could lose some or all of the money.

Family offset mortgage

A family offset mortgage is a type of mortgage with an offset account that is held by the borrower’s family. Savings are paid into this account, which has two main functions:

• They provide additional security for the mortgage;

• They reduce the amount on which interest is charged.

This means a family offset mortgage can reduce the interest you pay, which may lower your monthly payments, but the family usually earns no interest on the linked savings:

As a hypothetical example: with a £250,000 mortgage and £30,000 of family savings in a linked offset account, interest would be charged on £220,000.

If the borrower keeps up repayments, the family’s savings are returned in line with the lender’s terms, but they may earn no interest in the meantime and could be at risk if the borrower defaults.

Mortgage guarantee scheme

It is also worth knowing about the government’s 2025 Mortgage Guarantee Scheme. Under the scheme, the government gives participating lenders a guarantee against a portion of their potential losses on 91–95% loan-to-value mortgages, which helps keep mortgages with a 5% deposit available. It is designed to help eligible first-time buyers and home movers buy with a deposit as small as 5%. You do not apply to the scheme yourself: participating lenders offer eligible 91–95% loan-to-value mortgages under the government guarantee.

Summary

A guarantor mortgage is a type of mortgage in which a guarantor secures part or all of the mortgage with their assets. The guarantor is usually a close relative, such as a parent or grandparent. A guarantor reduces the lender’s risk, which may help the borrower borrow more or get a mortgage they could not get on their own. Some lenders may agree to release the guarantor once the borrower can afford the mortgage alone or has built up enough equity.

Can a guarantor mortgage be combined with a gifted deposit?

In principle, nothing prevents you from combining the two, but check that the lender’s policy allows it.