There's something really exciting about buying your first home. Taking that first step can be very rewarding, and becoming a homeowner can give you a huge sense of achievement and pride.
Looking for the right property can be fun, but it's understandable if you find it a little daunting too. After all, getting your first home can also mean arranging your first mortgage. It's a big financial decision, but it needn't be a complicated one. At the Scottish, we do all we can to make the whole process as easy and stress-free as possible for you.
We've been helping people in Scotland buy their homes since 1848. And, as a mutual building society, we're committed to giving all our customers a more personalised service, which includes a range of specialists mortgages to help you buy your home. It means we're one of the few companies to offer Guarantor Mortgages.
A Guarantor Mortgage could allow you to borrow more
Our Guarantor Mortgage is a special kind of mortgage for First Time Buyers. Having a guarantor is a way for you to borrow more money than your income would usually allow, because their income is also taken into account. One or more guarantors agree to guarantee your mortgage payments if you are ever unable to make the repayments. It’s only natural that many parents want to help their children get onto the property ladder – and we’re committed to doing what we can to help as well.
How it all works
Let’s say you earn £25,000 a year and want to buy a property worth £150,000. On your own, you might qualify for a mortgage of £100,000, which leaves you with a shortfall. As long as the income of your guarantor(s) (less other financial commitments) allows them to afford the monthly repayments on the guaranteed amount, they will usually be able to guarantee your mortgage. We will lend up to a maximum of 90% of the property valuation or purchase price (whichever is lower). The maximum loan size is £300,000 and the minimum loan size is £50,000. Having a guarantor doesn’t have to be a continuous arrangement – so if there comes a time when you feel that you can make the repayments yourself, you can apply to have the guarantor(s) released from the agreement (subject to an affordability assessment).
Who can be a guarantor?
Where both parents live together, it is a requirement that they both act as guarantors. The parent(s) acting as guarantor must not be older than 65 at the time of the application. The main guarantor must have a minimum sustainable income of £30,000 per annum. The guarantor(s) must be property owners and have their main residence in the UK.
Something to think about
Having a guarantor may give you the chance to get onto the property ladder when you otherwise wouldn’t be able to. That said, having a family member enter into a legally binding agreement with you is an important decision, and both sides need to think carefully about it.
Q. How much can I borrow?
A. All applications are treated on an individual basis and based on affordability. The maximum we will lend is generally determined by income (which can include pension).Any existing financial commitments will also be taken into consideration when affordability is calculated. Where the borrower is a ‘working child’ affordability must be shown from the income of the borrower and the monthly support from the guarantor(s). Where the borrower is a ‘non-working child’, affordability must be demonstrated by the guarantor(s) for all commitments and household expenses for both the borrower(s) and the guarantor(s).
Q. Who is eligible for a Guarantor Mortgage?
A. To be eligible:
- The applicant(s) and guarantor(s) will need to meet the Society’s documentation and underwriting requirements in terms of the guarantee.
- We will consider up to a maximum of 90% loan to value*.
- The title to the property must be in the name of the borrower(s).
- In addition to the guarantee, we will apply a Higher Lending Charge for any borrowing in excess of 80% loan to value or purchase price, whichever is lower.
- The applicant must purchase the property as their own main residence. Re-mortgages are not available.The applicant may be:
1. A working child (current earnings expected to rise over time and will meet affordability requirements in the future).
2. A non-working child (includes those in full time education).
Q. What kind of property can I buy?
A. Mortgages are available for owner occupied residential properties. All mortgages are subject to a satisfactory property valuation. The minimum valuation is £60,000.
Q. What guarantees do you offer?
A. We offer 2 guarantee options:
- Full Guarantee – provided for the full sum of the mortgage
- Limited Guarantee – restricted to the portion of the loan over 70% loan to value*. This normally applies where the guarantee is for a working child where the parent(s) is providing monthly support.
Q. What is the maximum term of the mortgage?
A. We will request that the guarantor demonstrates the necessary level of sustainable income for the term
of the mortgage. For example, we will check that the guarantor can manage the loan into retirement.
Q. Do I need to provide security?
A. Security for any mortgage granted will be as follows:
A first charge will be taken over the property being
purchased as security for the mortgage lending.
Parental Letter of Support for monthly payments – required to support any borrowing above normal affordability on the applicant’s own income.
Parental Guarantee from the parent(s) acting as guarantor.
Please note the guarantee could be for a limited amount, or for the full mortgage. It is also a requirement that guarantors take independent legal advice to ensure they fully understand the legal obligation of providing a guarantee.
Q. What is a higher lending charge?
A. This charge is based on the amount being borrowed. Full details of the charge can be obtained from our mortgage advisers. Where a Higher Lending Charge is applicable, this can generally be added to the mortgage but if you do this interest will be charged on this amount for the term of the mortgage. Please note total lending cannot exceed 95%.
Q. Can I make overpayments?
A. Yes, you can make over payments on your mortgage to reduce the capital. If this is during the initial period (where Early Repayment Charges apply), you may repay up to 10% of the loan amount of the mortgage each year without penalty. Once any period where Early Repayment Charges are applicable has ended, you may make capital reductions without limit or penalty to reduce the balance of the mortgage.
Q. Anything else I need to think about?
A. Buildings Insurance must be arranged prior to funds being released