Do guarantor mortgages still exist?
Guarantor mortgages still exist but they have become less common as Joint Borrower Sole Proprietor arrangements have replaced them. It is fair to say that 'guarantor' is an old-fashioned term in the mortgage industry.
Guarantor mortgages were popular before the stamp duty rules changed, as there was no additional stamp duty to pay for technically owning a second property. When the stamp duty rules changed and existing property owners had to pay enhanced stamp duty, the popularity of guarantor mortgages declined rapidly.
What is the difference between a guarantor mortgage and a Joint Borrower Sole Proprietor?
The main benefit of a Joint Borrower and Sole Proprietor mortgage is that the "guarantor" will go on the mortgage and not the title deeds. This means, in theory, they are not liable for the additional tax. With a guarantor mortgage, they would have been added to the mortgage and title deeds, meaning they would have been liable to pay the enhanced stamp duty.
Current landscape of guarantor mortgages
While traditional guarantor mortgages—where a family member or friend agrees to cover repayments if the borrower defaults—are less prevalent, several lenders continue to offer similar products. These include:
- Barclays offers the Family Springboard Mortgage, which requires a family member to deposit 10% of the property's purchase price into a linked savings account for a period of five years.
- Aldermore: Offers flexible guarantor mortgages, enabling family members to utilise their savings or property equity as security.
- Kent Reliance: Offers guarantor mortgages with flexible criteria, accommodating various borrower needs.
- Loughborough Building Society: Provides the Buy for Uni mortgage, enabling students to purchase property with a guarantor's support.
- Cumberland Building Society: Offers various guarantor mortgage options, catering to first-time buyers and those with smaller deposits.
Alternative: Joint Borrower Sole Proprietor (JBSP) Mortgages
Many lenders now prefer Joint Borrower Sole Proprietor mortgages over traditional guarantor arrangements. In a JBSP setup, a family member or friend is listed on the mortgage to boost borrowing capacity but does not have ownership rights to the property. This structure helps avoid additional stamp duty charges and capital gains tax implications; however, it is essential to seek legal advice.
Considerations and risks
Aaron Strutt, product director at Trinity Financial, says: "Guarantors are obligated to cover repayments if the primary borrower defaults, just like with a Joint Borrower Sole Proprietor Mortgage, which is likely to impact their financial standing and borrowing capacity. Additionally, some arrangements may require the guarantor to use their property or savings as collateral, posing potential risks.
Seeking Professional Advice
Given the complexities and potential risks associated with guarantor and JBSP mortgages, consulting with a mortgage broker and a trusted solicitor is advisable. They can provide guidance tailored to individual circumstances and help identify suitable lenders and products.
Call Trinity Financial on 020 7016 0790 to secure a mortgage or book a consultation
The information contained within was correct at the time of publication but is subject to change.
Your mortgage is secured on your property. Your property may be repossessed if you do not keep up repayments on your mortgage
Get started today
Speak to one of our mortgage experts. Book an appointment to come and see us or request one of our experts to call you.
