Guarantor

Sometimes your parents (or other people who are close to you) may be willing to act as guarantor for your loan. This can offer advantages to you as a borrower, but there are important implications to be aware of – particularly for your guarantor.

Having a guarantor for your loan can help you still qualify for a loan if you haven’t met the required 5% in acceptable genuine savings. Or perhaps you have saved the 5% but that gets eaten away when you factor in legal fees and stamp duty, meaning you don’t have enough. Having a guarantor can also help you avoid being required to cover the costs of Lenders Mortgage Insurance, which can be quite expensive.

But do be aware that not all lenders accept guarantors. And for those that do, the conditions of the loan can make life really difficult for your guarantor if you are unable to meet your repayments.

For example, if for some reason it turns out that you can’t meet your loan repayments, the responsibility falls on your guarantor. And if they can’t meet them, then the property the loan is secured against could be sold by your lender to recover the debt – and failing that, your guarantor’s property can be next in line.

One way to reduce your guarantor’s responsibility is by making their guarantee ‘limited’. This caps their responsibility to a nominated amount. Commonly this is set at a level to bring the loan amount to under the threshold that triggers the need for Lenders Mortgage Insurance.

As this can be a complex area, we urge you and your prospective guarantor(s) to seek independent professional advice before proceeding.  Contact us to find out what’s required.