For hundreds of years, mortgages were pretty black and white. You want to buy a property but don’t have the money to pay for it in full, so you borrow money from a lender and pay them back. Normal straight forward mortgages are given based on the borrowers income, outgoings and financial situation in general. However, as borrowing money becomes more difficult and lenders tighten restrictions and rules, people are looking to explore different ways of borrowing the money you need to buy a house. Two examples of this are guarantor mortgages and joint borrower sole proprietor mortgages.
These two types of mortgages potentially allow borrowers who otherwise would struggle to get a mortgage on their own, borrow enough money so that they can afford a property. They are often a great alternative to standard borrowing however, not all people qualify for them and not all people should use them. In this article, we will explore what these mortgage types are, and how getting one could help.
What Is A Guarantor Mortgage?
A guarantor mortgage is a mortgage that allows someone (usually a close family member) to be listed as a guarantor on your mortgage loan, in case you are unable to keep up with the mortgage commitment. Often, the guarantor’s own property will be used by the lender as security so that their property can be sold if neither the borrower or the guarantor can keep up with the mortgage payments. The extra assurance that the lender has reduces the risk of the mortgage so they are more inclined to lend.
The guarantor has their name added to the legal documents, agreeing to make the mortgage repayments if the borrower can’t. With this type of mortgage, they won’t actually be on the deeds of the property, and they won’t own any share of it. Some guarantor mortgages use savings rather than property as collateral so, the guarantor can put cash into a savings account to hold as security against the mortgage. If the borrower and guarantor miss too many payments, then money is taken from the savings to pay it off.
Normally a guarantor has to be a close family member, such as a parent, grandparent, brother or sister. You cannot be a guarantor for your friend. Being a guarantor for a family member can be really helpful and selfless but you have to be aware of the risks involved. If the person you are a guarantor for stops paying the mortgage, you will be liable for their debt and your own assets could be at risk. Always discuss guarantor mortgages with an advisor before making the commitment.
What Is A Joint Borrower Sole Proprietor Mortgage?
A joint borrower sole proprietor mortgage is pretty much exactly what it says. Two people borrow a mortgage, but only one of them lives in the property. With normal residential mortgages, if two people are going on a mortgage, it is expected that they will both live in the property. However, a joint borrower sole proprietor mortgage allows two people’s income to be included in the mortgage application for affordability purposes but only one of them needs to live in the property. As with a guarantor mortgage, this person normally needs to be a close family member such as a parent.
So, for example, a first time buyer on £30,000 a year may only be able to borrow £135,000 on their own. But, if the took out a joint borrower sole proprietor mortgage with their father who earns £60,000 a year, their mortgage affordability could potentially go up to £400,000. Because the joint borrower is just on the mortgage and not on the deeds of the property, this also negates things like stamp duty that the joint borrower might be liable to.
How Can A Mortgage Advisor Help?
We know that sometimes your mortgage plans don’t always work out, but that doesn’t mean that you are completely stuck. Often, a guarantor mortgage or a joint borrowers sole proprietor mortgage is the best possible option for you to get on the property ladder. But, it also might not be. It is so important for you to understand the pros and cons of getting a non-standard mortgage before committing. By calling and speaking to a mortgage advisor, you can be sure in the knowledge that everything has been analysed, calculated and evaluated so that you get the best possible mortgage for your circumstances.
If you or anyone you know is thinking of getting a joint borrower sole proprietor mortgage or a guarantor mortgage, please feel free to give our helpful and friendly advisors a call today.