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First Time Buyers Increasingly Opt For Guarantor Mortgage Products

 First Time Buyers Increasingly Opt For Guarantor Mortgage Products

With many lenders specifying that they require a minimum 20% deposit

, many first time buyers are having difficulty securing a mortgage.

For first time buyers in this position, a guarantor mortgage may be worth thinking about. This means that someone they are related to or are close friends with will guarantee some or all of their borrowing. Usually lenders prefer family, but will also consider close friends in some cases.

A guarantor mortgage means that your guarantor is a fall back for the lender in case you cannot meet your repayments. They usually put up some sort of collateral by way of property or other assets, and are liable to repay what you owe, so if you do default on your mortgage the lender can chase them for the outstanding amounts.

Many people are in a position where they can afford the repayments but cannot secure a loan as they dont qualify, yet have a deposit to put down on the property. If you use a guarantor, they can minimize your deposit requirement and boost their income or assets to boost your chances of loan approval. Its less risk to the lender, as they have a way of recovering the loan should you default.  First Time Buyers Increasingly Opt For Guarantor Mortgage Products


Its important that neither the guarantor or the mortgage applicant dont enter into this lightly. It needs careful consideration by both parties, and its worth contacting a mortgage broker to discuss the options, pros and cons. The criteria between lenders is often very different, so you need to make sure your broker is a whole of market broker who can look at all of the lenders available to find the best product for your circumstances.

Several lenders require that the guarantor guarantees the entire sum, whilst others require just part of the loan to be guaranteed. Some wont allow guarantors of a certain age and others require that the guarantor puts up their main property as a term of the loan which some people are reluctant to do. Lenders offer varying schemes for example, Lloyds TSB offers the Lend a Hand scheme, which allows people to use their savings.The options generally include using your income if you are short (available via Barclays) also if you are short of deposit you can use the equity in your home (Aldermore have a scheme for this). The other option is if you can remortgage and lend or gift the money to your children is another option, which means they could then get a normal mortgage. This may however put back your retirement plans so needs carful thinking about.

The guarantor product means the banks are thinking about their customers and acknowledge that they may not have all the income required or the deposit but still want to buy a property. The guarantor really needs to be a close family member or a very good friend as they ultimately have liability over the loan and the bank will come knocking on their door for payment if the mortgage applicant misses a payment.

Many people can afford the monthly mortgage payment but I cant raise the deposit. If this is the case, you cant borrow the money for a deposit from a bank loan as the lender will find out so there really is no hiding from your credit file. Therefore a good way get around this is to either get a guarantor for your mortgage or a gift from a family member.

Many whole of market brokers recommend these schemes and will go through the pros and the cons, they also recommend that you speak to a solicitor to fully understand the risks that a guarantor takes in helping the guarantee.

TMW has a great guarantor product whereby you only need to guarantor a small percentage of the loan should you wish this does take away the pressure of being a guarantor of the whole property. It is also nice that guarantor products are now more widely available in the past you had to be an up and coming professional with the ability to be able to afford to take on the mortgage in full in your own right after 3 years.

The key concern for the guarantor is to make sure you are happy with what you are committing to and understand the implications if it means you will have to work for longer and put off those retirement plans but at the end of the day with the current economic climate, people need to give their children a helping hand.

by: Richard Alton
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First Time Buyers Increasingly Opt For Guarantor Mortgage Products Seongnam