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
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