UK Guarantor Loans

The keys to finding affordable UK Guarantor Loans

Lenders operating in the UK will often allow a family member to provide additional loan security when making a home purchase.   The person assisting in this capacity is called the ‘guarantor’ — not to be confused with being a co-signer or co-applicant. 

A co-applicant will be included in the loan agreement and held responsible until the loan is completely repaid. 

A guarantor, on the other hand, is only in the agreement as a guarantee. The guarantee can be revoked

and the responsibility of the guarantor relinquished without the debt being repaid. To be able to include a guarantor, you must have the means to service the whole loan on personal income.

Would you like to know how many different types of UK guarantor loan are available? Return to our homepage to find out!

How does the ‘Guarantor’ work?

A key aspect of UK guarantor loans is the fact that the guarantor will allow the value of their own property to be used as security for taking out a loan. The borrower's home will be the primary security for the loan, the loaner will take out a mortgage over the guarantor's property. The loans itself will not be supported by this mortgage; it is there to support the guarantee of the guarantor.

Who can be a Guarantor?

It is usually a close family member that acts in the role of guarantor. Most often, the parents of the borrower are guarantors, but siblings, grandparents can also play the role. Some lenders may be fine if an ex-spouse or more distant relative acts as guarantor, but this is dependent on the lender.

What happens to the Guarantor, if the borrower fails to pay the back the loan?

In a case like this it is possible for the lender to take legal action against the borrower as well as the guarantor. The guarantor will only be responsible for the amount they specified in the original arrangement. It is a good idea for anyone considering acting as guarantor for such a loan, to retain qualified legal advice before signing any documents. This may actually be a requirement for many lenders.   

It is also important for a potential guarantor to know their capacity to borrow may be greatly diminished after they agree to act as a guarantor.

How will having a Guarantor affect your Loan Application?

This is especially helpful when an individual has the cash to make monthly payments but lacks the deposit in cold cash, a guarantor will help to secure the extra funds needed to make this initial payment.

Finding a way to save up for a deposit can be a difficult task, especially if paying a rent. Having a guarantor, you may be able to cover the entire deposit cost as well as the many other costs associated with purchasing a home. The specifics will vary from lender to lender, some may ask that the borrower also contribute some equity to the loan — even with the assistance of a guarantor.

Another Benefit of a Guarantor is….

A borrower can save thousands of dollars that would otherwise be spent on Lenders Mortgage Insurance. This is usually required for home loans, where the borrower has less than 20% of the deposit in hand. 

The LMI is a type of insurance that a lender will take out as an extra protection in these cases which contain the risk of high LVR lending (Loan to Value Ratio). Even though, this insurance is protection for the lender in case the borrower defaults the loan, the borrower will still pay the premium.   

Final Note

Once sufficient equity has been collected on the property, the guarantor can be released from the loan. There is sometimes a time limit for this and it depends largely on your initial deposit, the amount of payments made and other particular details from specific lenders.

If you are still a little unsure regarding the difference between ‘unsecured’ and ‘secured’ loans, please check out the following article for more in-depth information - https://en.wikipedia.org/wiki/Secured_loan