Guarantor mortgage, joint and family help: the options

What a guarantor mortgage is

A guarantor mortgage is a home loan where someone else, usually a parent or close relative, agrees to cover the payments if you cannot make them. The guarantor does not own any of the home, but takes on responsibility for the debt. It is one of several ways family can help: the others are a joint mortgage, a joint borrower sole proprietor mortgage, a family deposit product and a gifted deposit.

MoneyHelper describes a guarantor mortgage as one where a close relative agrees to guarantee the mortgage payments if you cannot pay. It calls this a serious legal step, because it means taking on the responsibility for paying the whole mortgage if the borrower cannot.

Not every lender offers a guarantor mortgage in this classic form. Family help also comes through the other routes below, and each one works differently.

Guarantor mortgage, joint mortgage and family help compared

Lenders use their own names for these products, and the details vary from one to the next. A qualified, regulated mortgage adviser can tell you which lenders offer each type and what their conditions are; the mortgage broker guide explains how advisers work.

How a guarantor mortgage works

You are the borrower and the owner. The guarantor signs a legal agreement with the lender. If you miss payments, the lender can ask the guarantor to pay instead.

Can you go guarantor on a mortgage

Lenders set their own rules on who can be a guarantor. In practice it is usually a parent or other close relative. FCA rules require a lender to assess whether the borrower, and any guarantor, will be able to pay the sums due before it grants the mortgage. MoneyHelper says the lender will look at the guarantor's credit file and do affordability checks on them. Some lenders also set an age limit, or expect a guarantor to own their own home.

What the guarantee is secured on

Some guarantees are backed by a legal charge over the guarantor's own home. Others are backed by the guarantor's savings, held in an account with the lender. Points to have the lender set out in writing:

• How much of the debt the guarantee covers: all of it, or a set part.
• What it is secured on.
• When the guarantor is released, for example once the loan falls to a set share of the home's value.
• What happens if the guarantor dies, retires or wants to sell their own home.

A guarantee also affects which schemes the mortgage can use. The rules of the government's Mortgage Guarantee Scheme, which supports some 95% mortgages, exclude a loan where someone other than the borrower provides a guarantee, security or cash deposit worth 10% or more of the loan.

Risks to the guarantor

Being a guarantor is not a formality. The guarantor is agreeing to pay someone else's mortgage with no right to the home.

• The debt. If the borrower stops paying, the guarantor can be asked for the missed payments and, in the end, for the debt covered by the guarantee.
• Their own home or savings. MoneyHelper warns that where a mortgage is secured with a guarantor's assets, it could put them at risk of losing their home.
• Their credit record. If the guarantor is asked to pay and cannot, that may be recorded on their own credit file.
• Their own borrowing. A lender may count the guarantee as a commitment when the guarantor applies for credit or a mortgage of their own.
• The relationship. Being asked to pay on someone else's behalf can put a strain on a family.

MoneyHelper's guidance on borrowing with or for someone else says nobody should feel pressured into it, and that pressuring someone to borrow counts as financial abuse.

Independent legal advice

Because the guarantor takes on risk without gaining any ownership, lenders commonly ask for the guarantor to take independent legal advice before signing. Independent usually means from a solicitor who is not also acting for the borrower in the purchase. This is lenders' practice, not a rule that applies in the same way everywhere, so the lender's own requirements are the ones that count.

Typically the solicitor explains what the guarantor is signing, how much they could be asked to pay and how the guarantee ends, then confirms to the lender that the advice has been given. The same step is common for the supporting borrower on a joint borrower sole proprietor mortgage. There is usually a fee, which sits alongside the other mortgage fees.

Joint mortgage

A joint mortgage is one loan taken out by two or more people, who usually also own the home together. Couples commonly buy this way, and friends or relatives can too.

The lender takes account of each borrower's income when it works out how much to lend. The how much you could borrow calculator shows the difference a second income makes, and the mortgage affordability guide explains the checks.

What to know before you sign:

• Each borrower is liable for the whole debt. MoneyHelper says that with a joint mortgage you are both equally liable for the whole loan, and not half each. If one person stops paying, the lender can ask the other to make all the payments.
• Your credit records become linked. MoneyHelper notes that when you take out any form of joint credit, your credit records become linked.
• You must decide how you own the home. GOV.UK explains that joint tenants have equal rights to the whole property, and it automatically goes to the other owners if one dies. Tenants in common can own different shares, and can pass on their share in a will.
• A parent who joins the mortgage and the title becomes an owner. That has tax consequences, covered below.

Where buyers put in unequal deposits, a solicitor can explain owning as tenants in common and recording the shares in a trust deed, also known as a declaration of trust.

Joint borrower sole proprietor mortgage

A joint borrower sole proprietor mortgage, often shortened to JBSP, puts a relative on the mortgage but not on the title deeds. You are the only registered owner. The relative, usually a parent, is a borrower: the lender counts their income, and as with any joint mortgage they are liable for the whole debt alongside you.

Buyers use it to borrow more than their own income supports without making the parent a co-owner. Things to check:

• Age. Lenders commonly set a maximum age for borrowers at the end of the term, so an older parent can shorten the term and push up the monthly payment. Test this with the mortgage calculator.
• The parent's own commitments. Their existing mortgage and outgoings are counted, and the new loan may count against them if they want to borrow later.
• The exit. Ask how and when the parent can come off the mortgage. That normally means you passing the lender's affordability check on your own income.
• Legal advice. Lenders commonly require the supporting borrower to take independent legal advice.
• Tax. How stamp duty applies depends on who is treated as a buyer of the home. HMRC's manual says the purchaser is the person who acquires the subject matter of the transaction, and whether a supporting borrower counts can turn on whether they take any interest in the home. A solicitor must confirm the position, in writing, before you exchange.

Family mortgage: deposit and offset-style products

Some lenders sell products built around a relative's savings or home instead of a guarantee of the payments. They go by different names, such as family deposit or family-assisted mortgages.

MoneyHelper describes the family deposit version: someone related to you keeps a percentage of the property's price in a savings account as a guarantee. Typically the savings are held for a set number of years and returned if the payments have been kept up. A family offset mortgage is a different arrangement, where a lender offers it: the relative's savings are set against the loan to reduce the interest charged. Some lenders have also offered a version that sets a relative's savings against your mortgage balance, so that interest is charged on a smaller amount.

Before a relative commits, the points to ask the lender are how long the money is tied up, whether it earns interest, and in exactly what circumstances the lender can take it. These products can allow a very small deposit, or none; the first time buyer mortgages guide covers 95% and 100% mortgages and the risks of borrowing the whole price.

Gifted deposit and the gifted deposit letter

A gifted deposit is money given to you, usually by a parent or grandparent, towards your deposit. The giver takes on no debt and no stake in the home.

The lender will want proof. MoneyHelper lists a gifted deposit declaration, a form completed by the person giving the money, among the documents you may need for a mortgage application if any part of your deposit is a gift. Each lender has its own form or wording. Typically the giver signs it and it states:

• Who they are and how they are related to you.
• The amount.
• That it is a gift, not a loan, and will not have to be repaid.
• That they will have no interest in the home.

Your solicitor will commonly also ask the giver for identification and evidence of where the money came from, as part of their anti-money laundering checks. Lenders and solicitors generally expect to be told about a gift at the start, not in the week before exchange.

If the money is in fact a loan that you will repay, say so. FCA rules require a lender to take account of your committed spending, which can include repayments on a family loan, and describing a loan as a gift on a mortgage application is a false statement.

Stamp duty and inheritance tax

Stamp duty when a joint buyer already owns a home

In England and Northern Ireland, HMRC's guidance says that if any one of the buyers individually has to pay the higher rates of stamp duty for additional homes, the higher rates apply to the transaction as a whole. So a parent who owns their own home and becomes a joint owner of yours can make the whole purchase liable for the higher rates, a surcharge of 5% added to the standard rates.

First-time buyer relief has a similar condition. GOV.UK says you are eligible only if you and anyone else you are buying with are first-time buyers.

HMRC's manual says the purchaser is the person who acquires the subject matter of the transaction, in other words the home. A guarantor, or a giver of a deposit who takes no share in the home, is not acquiring it, which is one reason families use those routes, but a solicitor must confirm the position for your own purchase. The stamp duty calculator shows the tax with and without the higher rates, and the stamp duty guide explains the rules. Scotland and Wales have their own taxes with their own rules for additional homes.

The seven-year rule for gifts

GOV.UK says no Inheritance Tax is due on a gift if the giver lives for 7 years after making it, unless the gift is part of a trust. It also says each person can give away a total of £3,000 worth of gifts each tax year without them being added to the value of their estate.

Family help on a new build

Three points apply when the home is new:

• The deposit is due early. You usually pay it at exchange of contracts, which can be within weeks of reserving, so a gift needs to be in your account, with its paperwork, by then.
• Legal advice takes time. A guarantor's or supporting borrower's appointment with their own solicitor has to fit inside the builder's exchange deadline.
• A builder's contribution is not a gift. Money a builder puts towards your deposit is an incentive, which is declared to your lender and can reduce what it will lend. The new-build mortgages guide explains how.

The cash you need calculator adds up the deposit, tax and fees on a specific home, so everyone can see how much help is really needed.

Before anyone signs: a checklist

1. Write down what each person is putting in and what they expect back.
2. Set the routes side by side: guarantee, joint mortgage, JBSP, family deposit product or gift.
3. Ask a qualified, regulated mortgage adviser which lenders offer each one and on what terms.
4. Have your solicitor confirm the stamp duty position before you reserve.
5. Find out whether the lender requires independent legal advice for the guarantor or supporting borrower.
6. Get the lender's gift declaration and the giver's proof of funds ready.
7. Agree what happens if payments are missed, if someone dies, or if you want to sell.