A guarantor is someone who guarantees to meet your mortgage or rent payments if you cannot or will not do so for any reason. In many cases, the guarantor is a parent or other relative such as a grandparent. The guarantor is essentially providing back up for someone else’s loan or other financial agreements. They provide a form of insurance against the loan, if the person paying the loan doesn’t do so.
Such an agreement can be set up with a landlord if the person wants to rent a property. It can also more commonly be set up with a lender such as a bank or building society if the person wants to take out a mortgage to buy a property.
Be aware of the risks if you are asked to be a guarantor
It is easy to think you will never be called upon to repay the loan if things go wrong. In reality, no one can tell what may happen in the future. Even if your relative is trustworthy and will do all they can to pay off their mortgage, they could fall into financial hardship. If this occurs, your role as guarantor means the lender can call on you to repay the loan. This could leave you in dire financial straits, hence why it is very important to consider the potential consequences and worst-case scenario before you agree to take on the role.
With young people struggling to save the required amount to put down as a deposit on a mortgage (or to get a mortgage at all), it is no surprise that guarantor mortgages are becoming more common. However, proper advice should be sought prior to agreeing to be a guarantor for anyone – even your own child.