A guarantor is a third party to a home loan, helping you to get a loan by offering additional security as support.  Guarantors are generally limited to spouses or immediate family members.

Many lenders allow a family member  to help you to buy your own home by providing additional security. The person providing this assistance is known as a guarantor. This is different to being a co-applicant  or co-signer.

A co-applicant  is included on the loan and will be responsible  for the entire loan until it’s repaid in full.

A guarantor, on the other hand,  is linked to a loan by a guarantee. This guarantee can be released  and the guarantor’s responsibility stopped  without the loan being repaid in full. To use a guarantor, you must be able to service the entire loan on your income.

How does it work?

A guarantor allows the equity in his or her own property to be used as additional security for your loan. The primary security for the loan will be your property, but the lender will also take a mortgage over your guarantor’s property. This mortgage will not support the loan directly but will be used to support a guarantee from your guarantor.

Who can be a guarantor?

Guarantors are generally limited to immediate family members. Normally, this would be a parent but guarantors can include siblings and grandparents. Some lenders will allow extended family members and even ex-spouses to be a guarantor to a loan, but this varies depending on the lender.

What is a limited guarantee?

A limited guarantee simply means the guarantor only needs to secure a part of the loan, rather than the entire amount.  This will benefit the guarantor from unnecessary risks as they won’t be liable for the entire loan. Lenders will be able to release the guarantor once the loan falls below a certain percentage of the property value (generally 80%). This can be achieved by a combination of capital growth in the property and principal repayments off the loan balance.

Only some lenders offer limited guarantee if the guarantor has sufficient equity in their collateral.

What are the implications for the guarantor if the borrower cannot pay back the loan?

If you’re unable to pay back the loan according to the terms of your contract, the lender can take legal action against

you, and in some circumstances, your guarantor. Your guarantor will be liable for the amount specified in the guarantee. Anyone who is considering being a guarantor for a property loan should seek independent legal and financial advice before accepting the role. Most lenders will insist on this, prior to accepting a guarantee.

It is important to note that a guarantor’s ability to borrow will be reduced after they have agreed to act as a guarantor.

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