The mortgage marketplace can be a frustratingly complex world to try and navigate. Joint and guarantor mortgages are two types which appear to potentially make buying a new home easier but are still a major commitment like any mortgage, so what are their risks and benefits?
A joint mortgage allows you to borrow money to purchase a property with another person, such as a partner, friend or family member. It can be attractive to first-time buyers, as it allows them to pool resources for a deposit. Both parties must be able to meet the provider’s lending criteria. They then share ownership of the property and also responsibility for making mortgage payments. Although this can be beneficial for many people, potential borrowers should be aware of the risk that if one party is unable to pay their share, the other will still be liable to cover the whole amount of the payment due. Applicants should also be sure to agree their tenancy status with each other beforehand, as this will govern each party’s rights and responsibilities in the event one party needs to move out, etc.
A guarantor mortgage allows buyers who don’t meet the usual financial criteria for various reasons, such as bad credit history, to borrow the capital for their home on the agreement that their guarantor, usually a family member or friend, will make their mortgage payments in the event they fall behind. Increasingly, guarantor mortgages are being replaced by many lenders with a type called joint borrower sole proprietor mortgages. Joint borrower sole proprietor mortgages are slightly different, as the guarantor only becomes liable for the debt if the borrower cannot make payments at all. The guarantor has no legal claim to the property borrowed against. These types of mortgages are popular with first-time buyers and parents seeking to help their children on to the property ladder but should be considered carefully, as the guarantor must be able to meet the financial criteria for lending and also shoulder the responsibility for the payments in the event of financial difficulties.
These mortgages are a helpful option in what can be an expensive property market. Although they share many of the same risks and responsibilities of other conventional mortgages, the chance to get on the property ladder cannot be overlooked for many.