If you are one of the millions of people in the UK desperate to buy your first home but you are being held back by the fact you simply do not earn enough – there is a shard of light on the horizon.

And it comes in the shape of guarantor mortgages.

This lesser-known breed of home loan offers a practical solution for first-time buyers who need a bit of help getting on to the property ladder but who also have a parent or relative willing to provide financial security.

They come in many shapes and forms. And just recently a couple of 100 per cent loan-to-value (LTV) guarantor-style mortgages have come on the market, meaning even those with no deposit have a chance of getting a loan.

So these products really are worth checking out. Here’s more on what guarantor mortgages have to offer.

What exactly are Guarantor Mortgages?

As the name suggests, these are mortgages where the borrower takes out the loan in their own name but has a ‘guarantor’ to provide assurance on the repayments.

The guarantor is usually a close family member such as a parent or guardian but can be a more distant relative such as a grandparent or aunt or uncle.

The role of a guarantor is to provide a guarantee that, should the borrower default on the loan, they will be pick up the tab.

So while they will be putting no money into property, they provide an element of security to the lender.

Guarantor mortgages come in all shapes and sizes depending on the provider. The two main types you are likely to come across are full liability and limited liability.

The guarantor will back the entire loan if you opt for a full liability mortgage. If you go for the limited liability option your guarantor will only provide a guarantee for the part of the mortgage, usually the proportion the borrower cannot afford.

What are the conditions?

Guarantor mortgages are not for borrowers who want an ‘easy option’. They are considered a stepping stone to taking on a mainstream mortgage and are intended as a short-term solution to help first-time buyers.

As a result most lenders will be looking for credit-worthy candidates who are on course to be getting a good salary in the future.

It’s not just the borrowers who will be scrutinised. Obviously, the guarantor will undergo checks – most importantly to ensure they have a large enough income to cover repayments.

Many lenders will refuse to allow someone over the age of 75 – or even 65 – to become a guarantor and they will insist on them being a UK resident.

What’s more, since the guarantor is potentially taking on the burden of a mortgage, they must be aware of how this could affect them financially.

If the borrower they are providing assurance for defaults, and they have to take on the loan, then they may have trouble getting a mortgage of their own should they need one.

It is therefore essential guarantors get legal advice before embarking on the process.

What are the advantages?

The beauty of guarantor mortgages is they provide a way for people to borrow more than their income multiple would normally allow.

Not only do they provide a solution to many first time buyers who would otherwise struggle to get on to the housing ladder, they also fill the gap in the market for people whose parents cannot afford to help fund a house purchase.

Because, whilst most parents, guardians or relatives would love to inject some cash into their child’s first home, it’s not always practical.

Indeed, many first-time buyers might be reluctant to receive parental help in this way.

Stephen Noakes, commercial director for mortgages at Halifax said: “The bank of mum and dad is an important crutch for many first-time buyers, yet our research demonstrates parents aren’t as savvy as they could be when it comes to deciding how best to help.

“Times have changed. Traditionally first-time buyers turned to their parents for a hand-out, but for many giving a deposit or paying off debts is not financially viable.”

What about the disadvantages?

As mentioned, these mortgages require the guarantor to take on a huge responsibility. Being aware of the consequences of what you’ve signed up for, if you are a guarantor, is essential.

And not everyone can be a guarantor. Age is a factor, and anyone who cannot cover their own financial responsibilities, let alone someone else’s, will not qualify.
Be aware also that these mortgages are not widely available as not every lender provides them.

And you are unlikely to find long-term guarantor mortgages. Remember, they are a way of bridging the gap between being a struggling first-time buyer and gaining mortgage independence.

Some lenders will insist the borrower take on the full burden of the mortgage after a certain period of time – such as three to four years.

Use the Myfinances.co.uk comparison tools to find the best deal on a guarantor mortgage.

Where can I find guarantor mortgages?

If you’ve never come across guarantor mortgages, you’re not alone. Research last year by Halifax uncovered evidence only 21 per cent of parents had heard of them.
Perhaps this may be because the market is not exactly overcrowded with guarantor mortgages.

Many mortgage companies also offer guarantor versions of their mainstream mortgages, so you may not find what you are looking for simply by examining the best buy tables or scouring price comparison websites.

A good independent whole-of-market broker should be able to help you nail down the right deal.

Meanwhile, the Co-operative Bank and Mortgage Works are among the big players in the guarantor mortgage market.

To give you an idea of the kind of deal you’ll be getting, The Co-operative’s Parental Guarantor Three-Year Fixed-Rate First Time Buyer mortgage currently has a rate 5.19 per cent, and requires a 15 per cent deposit.

While most guarantor mortgages require a decent deposit, there are currently two 100 per cent LTV deals available.

These come courtesy of Aldermore Bank which launched a 100 per cent LTV mortgage underpinned by a parental guarantee in September.

Meanwhile Marsden Building Society has also unveiled its Family Offset mortgage range which offers up to 100 per cent LTV.

In a twist on the guarantor theme, it asks the family member providing support to put up their savings as security.

Rob Pheasey, chief executive of the building society, said: “The family offset mortgage complements our existing range of mortgage products designed to help people on to the housing ladder.

“The initiative allows family savings to be used as additional security, supporting a higher level of borrowing and by offering this new loan type as an offset mortgage there is an added benefit of helping reduce the amount of interest charged.”

Lloyds TSB’s Lend a Hand mortgage also runs along the same lines. You’ll need a five per cent deposit to take on this mortgage, which also requires the ‘guarantor’ (known as the helper) to put up savings of up to 20 cent as security on the loan.