Being a guarantor for rent and mortgages

Not everybody has the perfect credentials to ensure that they can borrow sufficient funds to buy a house or take on a rental contract. The criteria can go against even the most responsible customers and sometimes a helping hand is needed.

If this sounds familiar and you are wondering how to be a guarantor and what it entails, then read on. Our overview of the topic will show you exactly what you need to consider before you go putting pen to paper.

Here, you’ll find all the essential info on the following key areas:

  • What does being a guarantor mean?
  • Can anyone be a guarantor?
  • Why would someone need me to be a guarantor?
  • What is a guarantor check?
  • Frequently Asked Questions:
    • Will I have to be a guarantor for the duration of their whole mortgage?
    • Can I stop being a guarantor for a loan?
    • Can I be a guarantor with bad credit?
    • Does being a guarantor affect my credit rating?
    • Will being a guarantor affect me getting a mortgage?

What does being a guarantor mean?

The first thing to say is that this decision should not be taken lightly. By becoming a guarantor, you are effectively agreeing to cover someone else’s debt should they fall short on their repayments.

This could be for a mortgage, a loan or even rental payments. And as you can imagine, this may involve substantial sums of money. 

You need to make sure that you trust the person asking for your help and feel confident that they will fulfil their financial responsibilities. For that reason, most guarantors are a parent or other close family members.

But this arrangement isn’t without its potential pitfalls. So you should fully understand the UK guarantor requirements before putting your name forward to help out.

Can anyone be a guarantor?

When mulling over the decision to act as a guarantor, it’s natural that you’ll have many questions. And wondering if you are even eligible is probably right up there at the top of the list. 

Well, the good news is that almost anybody can potentially act in this capacity.

The first thing to tick off the list is that you’re over 18—or over 21 in some cases. The UK laws simply won’t allow for anyone younger than this to step forward and undertake such a responsibility. The lender will also enforce an upper age limit of around 75 years of age.

The other main requirement is that you have a good credit history and that you can prove that you are financially stable.

You must also have a separate bank account from the borrower. But this is usually the case anyway.

What does a guarantor need to provide?

The lender will run a credit check on anyone looking to act as a guarantor. And they also need to see financial records such as bank statements, for example, to prove that there is suitable income or savings to cover the debt repayments.

Does a guarantor need to be a homeowner?

No. However, if you are able to show that you have collateral in the form of property, then it will certainly go in your favour. Be aware that if both the person borrowing the funds and you are unable to make repayments, then your home could also be at risk.

Why would someone need me to be a guarantor?

Before learning how to be a guarantor, it’s perhaps more important to understand why you’re being asked in the first place. 

There are many reasons why someone may need you to come to the rescue when they’re looking to rent a home or apply for a mortgage etc. And one of the most common is a first-time buyer not having enough credit history on their side.

Mum and Dad will usually be the first port of call in this situation. Failing that, close relatives such as siblings or aunts and uncles.

It’s also possible that someone looking to access a loan may have a new job or they don’t have the desired minimum salary to meet the lender’s criteria. But this should, perhaps, raise a red flag for a potential guarantor as well. 

Some of the things to ask yourself before agreeing to help are:

  • If they have a bad credit history, then why is this the case?
  • Can you trust them to manage the repayments?
  • Are they generally responsible with money?
  • Is the debt essential?
  • How will the repayments affect your life if the worst came to the worst?
  • How would it affect your relationship?

What is a guarantor check?

Perhaps you’ve already made up your mind and you’re ready to take the next step to help out a friend or family member. You’ll be wondering what information a guarantor needs to provide in the UK so that the lender can approve your request.

With a few personal details, the loan or mortgage company is able to run a credit check on any potential guarantors. It shouldn’t affect your credit score as they perform a ‘soft check’. This means that the search isn’t visible to other lenders in the future.

If you have a strong credit score, then it’s far more likely that you’ll be accepted in the role of a guarantor.

You will also need to pass an affordability test. This shows that in the event of taking over the repayments, your finances won’t be stretched too thinly. 

If the potential loan repayments represent a large percentage of your salary and you already have your own rent etc. to manage, then a lender may decide that you aren’t in a position to help.

Frequently Asked Questions

Will I have to be a guarantor for the duration of their whole mortgage?

No. You can arrange to have your responsibility removed after a certain point. When the main borrower’s credit score reaches an acceptable level is one instance where this may occur. Also, when a fixed amount of the loan is repaid is another way for this to happen.

Can I stop being a guarantor for a loan?

Yes. You can stop being a guarantor but only with the lender’s consent. As we said above, certain criteria need to be met first. And this is usually an improved credit score for the borrower or if they’ve paid back a large amount of the loan.

Can I be a guarantor with bad credit?

Yes and no. It all depends on how bad your credit history is. A few minor blemishes here and there may not be a problem. But if you have any major issues with your previous financial dealings, then this could well go against you.

Does being a guarantor affect my credit rating?

Applying to be a guarantor won’t directly affect your credit rating as lenders only perform a ‘soft check’. However, in the event that your duty as a guarantor actually kicks in and you have to start making repayments, then your credit score will then reflect your new financial responsibility.

Will being a guarantor affect me getting a mortgage?

Many people want to know how to be a guarantor without affecting their own chances of borrowing money themselves. The good news is that it won’t affect your credit rating as long as you haven’t fallen into arrears as a guarantor. But from an affordability point of view, a mortgage company will see your financial commitment to another loan or mortgage as a monthly cost that needs to be taken into account.

Final thoughts

Knowing how to be a guarantor is, perhaps, the easiest part of the process. The most difficult will be making the decision to step up and help out in the first place. It’s a huge responsibility and you should only go ahead if you are 100% sure that it’s the right thing to do.

Being accepted as a guarantor is anything but a done deal. And you’ll need to show that you are able to take on the debt in its entirety should the worst-case scenario present itself. To find out more about all aspects of buying, selling and renting a property in and around London, head to strawberrystar.co.uk.