Guest post by Annie Button
Buying a home in the UK is something that is feeling more and more out of reach for those who haven’t yet managed to get onto the property ladder. On top of that, the rental market is also pricing people out of their preferred locations, forcing people to cut back on essentials in favour of paying their bills.
With the cost of living spiralling out of control, the interest rates following suit and inflated valuations put on houses, it’s easy to see why the market is perceived to be in crisis. So if the prospect of owning or renting a home grows ever smaller, how is it possible for a new generation to rule their own roost? That is where a guarantor can help not only secure a property for lease or ownership but also help you to save money. Here’s how.
How does a guarantor work?
In the property market there are two ways to use a guarantor to help you find somewhere to live. Firstly, you can use a guarantor to help you move into rented accommodation. The guarantor is typically a relative or close friend who agrees to pay the rent to your landlord in the event that you can no longer pay it.
If your guarantor isn’t willing or able to pay the rent on your behalf when or if the time comes, the landlord can take them to court. Depending on the terms in the agreement, a guarantor may also be liable to pay for any damage or disrepair afflicting the building.
Secondly, a guarantor mortgage works in a similar fashion except rather than a landlord it is the bank that must strike the arrangement with your guarantor. Similarly, if you cannot pay your mortgage, and neither can your guarantor, then court proceedings will be undertaken.
To ensure their safety, most landlords and banks will undertake a credit check of the guarantor before the agreement is in place to ensure they have the means to pay if necessary.
What are the benefits of a guarantor?
Whether you are using a rent guarantor or have gained a guarantor mortgage, the benefits are significant.
Those opting for the help of a guarantor can enjoy:
- Access to a wider range of homes
- More disposable income and less borrowing
- Better security rather than having to borrow money in the future
- Getting on the property ladder
Using a guarantor can help you to find somewhere to live, particularly if you have just started a new job, are on low income or you have a bad credit history, Without a guarantor, these factors combined can limit the available properties to potential renters and homeowners, forcing them to live in an undesirable location or in a smaller home than meets their needs.
Expanding your options
Due to circumstances such as low income or bad credit, you may struggle to afford rent on the home that you can see yourself and your family in. This is because you are viewed as a risk by the landlord, loan company, bank or other.
The risk to these parties is that you cannot afford your rent, leaving them out of pocket. That can limit your options and reduce the amount of rent you are deemed capable of paying and maintaining. However, with a UK rent guarantor that risk is diminished and the options for where you may choose to live are increased.
Or you may find the same property available at a better rate when a guarantor is involved. In terms of guarantor mortgages, some allow you to borrow as much as 100% of the property’s value as the guarantor’s savings or home is the security against the loan.
More disposable income and reduced borrowing
Opting for an individual guarantor or a guarantor service affords those who will be living in the house greater financial freedom. They are not subjected to the often punishing rates of credit that their financial situation may otherwise demand, instead the finances of the guarantor are factored in. This can lead to more disposable income as renters are not forced to pay over the odds for a home that others may find comes with cheaper rates if their credit is good.
Guarantors help offer better security
While it’s your responsibility to look after your money, a guarantor can help you to focus your funds in other directions through reduced rental or mortgage rates. For example, you may be able to save better in the short term if you are renting to allow yourself a larger deposit and improve your credit rating by keeping up with payments.
If you are in a low-paying job or you work freelance, there is security there in the event that you cannot make your payments. But it also allows you to take the time to focus on your life with the security of the guarantor, as long as you continue to make the minimum payments.
Investing as a guarantor
Investing in property as a guarantor is a great way to help children or family members take their first steps onto the property ladder. A smart investment is to become a guarantor for children to provide a place to live when they’re studying or starting their career. It allows a parent to help their child buy their first home without having to gift them their deposit, then when the guarantor arrangement is no longer needed the savings as security are returned.
How guarantors help you get on the property ladder
Many people who are in rental accommodation aspire to own their own homes but circumstances often dictate whether that’s possible or not. From your own personal situation to the state of the economy, getting on the property ladder is a challenge for millions of people.
But, a guarantor can help you get a mortgage thanks to the security of their stable financial position. They can then withdraw their funds once the end of the first term is complete, typically after five years. You may still need to save for a deposit as not all guarantor mortgages agree to allow you to borrow the full 100% value of the home.
How to get a guarantor to help you find a property
Typically, those who qualify for a guarantor loan, mortgage or rental agreement are those with financial question marks against them in the eyes of the bank, lender or landlord. If you find yourself with bad credit, low income or have recently gained employment it may be difficult to find a property.
Typically, a guarantor is someone who owns their own home and is financially stable but companies and academic institutions can also act as a guarantor. That may be someone you know who is willing to act as a guarantor on your behalf or you may wish to use a guarantor service from a dedicated company to assist you.
With ongoing challenges facing the UK’s property sector, it’s no surprise if property prices continue to be impacted and so much so that now might be a sensible time to have a UK guarantor on your side.
