How You Can Help Your Kids Get on the Property Ladder

These days, one of the most incredible things that a parent can give their child, is the opportunity to start building on their own independence. Across the UK young adults are struggling to find a way to leave the nest, because they simply don’t have enough money to save up and place a deposit on their own home.

With the average home in the UK costing around £200,000, there are a lot of financial concerns to think about before a child can simply jump into home ownership. The good news is that there are various ways in which parents can help their children to get onto the property ladder, including all-important guarantor mortgages.

What is a Guarantor Loan or Guarantor Mortgage?

Guarantor loans are simply home loans that come with an extra “guarantee” designed to help the lender feel more secure about giving money to a customer who might not have an incredible credit rating or a huge deposit to offer. The idea behind a guarantor loan is that if a child can no longer make the repayments on their mortgage, their parent, or any other family member acting as a guarantor will step in and offer up the money.

Guarantor loans have quickly emerged as a popular solution for people all throughout the UK and the world, who want to access good terms on their home loan, but might not have the credit required to be eligible for the right deal. It’s important to remember that a guarantor and a cosigner on a loan aren’t the same thing. While a co-signer shares responsibility of the loan, and the house with the other person on the loan contract, a guarantor does not.

While guarantor mortgages are the most common form of guarantor loan, it’s worth remembering that you can ask for a guarantor to become a part of other kinds of loan too. This is particularly helpful for people who need a little help getting money for an important purchase, such as a car, or a business investment.

White Double Fronted House in Autumn
Photo by Scott Webb on Unsplash

Do You Have to be a Parent to Support a Guarantor Loan?

Typically, most guarantor mortgages are taken out by children, with their parents acting as support to help them get their first foot on the property ladder. Most lenders will require a guarantor to be related to the person requesting the loan – even if it’s not your parent. This is because a loan is a very serious financial obligation, and family members are in a position where they can keep a close eye on their loved one’s activities.

No matter who chooses to act as a guarantor for a loan on behalf of a new homeowner, the important thing to remember is that if the individual who owns the house stops making repayments, the guarantor will need to step in, and pay the price according to the terms and conditions that were laid out in a contract. Importantly, if a guarantor doesn’t take responsibility, the home will be placed into foreclosure, which leaves a bad mark on both a guarantor’s credit and the credit of the homeowner.

What Makes a Guarantor Loan Such a Good Idea?

Because a guarantor loan is a type of “secured loan”, it can be a worrying concept to some young borrowers. However, it’s important to remember that any kind of mortgage is secured, as if you’re unable to pay the loan, the bank has the right to claim your house for themselves. A guarantor loan simply gives you an opportunity to access mortgage deals that might not be available to you by yourself.

Because your guarantor is stepping up and telling the bank that they’re happy to act on your behalf if something goes wrong, you won’t need to worry about being refused a home loan because your credit is too low, or because you can only afford a very small deposit. This is incredibly beneficial for first-time buyers, who might otherwise struggle to save up for a house, while they’re still paying rent, or struggling to find a higher-paying job.

The good news about guarantor mortgages is that if you’re concerned you might get yourself into a loan that you can’t really afford, the bank that you’re applying with will be able to steer you in the right direction. Just like any other kind of mortgage, they’ll check your income to make sure that you’ll be comfortable paying the price of your mortgage in the long term – whether you use a guarantor or not.

 

Disclosure: This is a collaborative post.

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