Parent-backed mortgages: a sign of the times?

When you decide to become a mortgage advisor, you will agree to undertake the relevant studies to become fully regulated and compliant. The CeMAP exams are an integral part of the process you will follow in becoming a fully fledged advisor. They are a statutory requirement of the Financial Conduct Authority (FCA), which oversees the mortgage market.

The CeMAP syllabus covers everything, ranging from regulatory history and framework to the home-buying process. It also covers the role of a guarantor, what the role involves, who can be one, and what it means if you want or need one to help secure the purchase of your home.

As current media reports continually announce, first-time buyers are finding it increasingly difficult to take their first step onto the property ladder. Regulatory requirements are growing and affordability calculations are getting tighter, meaning that more people are now turning to the ‘Bank of Mum and Dad’ for help.

Who can be a guarantor?

Generally, a guarantor is either one or both parents, or another close family member. The huge responsibility that comes with agreeing to act as a guarantor for someone is the fact they are stating that they will maintain the repayments if the borrower does not, and that they, as the title suggests, guarantee that payments will be made. This relies on and calls for a lot of trust between the parties.

Not all lenders offer a guarantor option, and even if they do, they will not agree to every application. They will review the existing mortgage commitment of the guarantor, along with their income and remaining time left in employment. They will want to satisfy themselves that the guarantor would comfortably be able to maintain their existing mortgage, and also the mortgage they are being asked to guarantee (in case they ever had to).

What circumstances may a guarantor mortgage be applied for?

Some cases involve university students. In rare instances, financially savvy parents may feel that it is common sense to actually purchase the property that their child will reside in whilst studying for their degree, as opposed to paying out vast sums of rent. It also means that the parents can keep an eye on the property to ensure that it’s safe, secure and well maintained. The parents may put the property in the child’s name, then dependent on how many others live there also, use their rent payments to pay the mortgage each month. Once their offspring has graduated, the property is could be sold.

Terminating a guarantor agreement

Some borrowers are uncomfortable with having a guarantor, as they feel it ties them both together for the duration of the mortgage, but this is not the case. As the borrower’s circumstances change and their income increases, as does their confidence in themselves and their ability to manage the repayments without the support of a guarantor. When that happens, they can look to apply to have the guarantor removed from the mortgage. It is a positive for the borrower, to take full control and pride in the knowledge that they are now completely self sufficient, and no longer rely on parental support.



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