Effect of a guarantor on lending amount

[tails009]

Hi all,

I’m looking for advice / experience with regards obtaining a mortgage using a guarantor. I’m in Scotland if this makes a difference?

To cut a long story short; earlier this year I decided to go back to work after a couple of years at home with the kids and set up as a contractor through a Ltd. Company. Now we have extra money coming in we’ve started looking to move but since I’ve been a contractor such a short amount of time I understand that we can’t use my salary for obtaining a mortgage.

However, in laws have stated that they would be happy to be guarantors on a mortgage but what effect would this likely have on the amount a lender will be willing to lend?

Some rough figures for reference:

Income:
Salary 1 (other half) = £62k
Take home = £3,200/month

Ltd Company monthly withdrawal (me) = £4,200/month

Therefore, joint take home is approx £7,400/month

Current Savings = £25k (increasing by £4k / month)

Current house:
Value = £220k
Outstanding mortgage = £140k (18.5years remaining)
Therefore, equity = £80k
Current Mortgage payments = £800/month

Further debts:
0% credit card = £11k total (can be cleared from savings)
= £110/month
PCP on car = £80/month

Using the current lenders website, based on salary 1 alone, we can borrow an extra £90k which would put us at a total of £310k total purchase price. However, the houses we’re looking at are tending to be closer to £400k so in theory we want to borrow an extra £90-100k.

Using the same lender:
The mortgage repayments for a £310k purchase would be approx. £1,100/month for a 5y fix.
The mortgage repayments for a £400k purchase would be approx. £1,500/month for a 5y fix.

So the difference is £400/month which is approximately 10% of what I take out of the Ltd company monthly.

So after all of that, my question is, would using a guarantor be likely to secure an extra £400 - £500 / month from a lender? Is that how it works? The inlaws own their own home and have substantial savings so I don’t think there would be any issue with using them for this?

Thanks.

[NickCQ]

Sir Sarnie of this parish will be along shortly but I suspect you would be better off using a specialist that can underwrite your contracting income rather than getting a guarantor.

[Sarnie]

tails009 said:

Hi all,

I’m looking for advice / experience with regards obtaining a mortgage using a guarantor. I’m in Scotland if this makes a difference?

To cut a long story short; earlier this year I decided to go back to work after a couple of years at home with the kids and set up as a contractor through a Ltd. Company. Now we have extra money coming in we’ve started looking to move but since I’ve been a contractor such a short amount of time I understand that we can’t use my salary for obtaining a mortgage.

However, in laws have stated that they would be happy to be guarantors on a mortgage but what effect would this likely have on the amount a lender will be willing to lend?

Some rough figures for reference:

Income:
Salary 1 (other half) = £62k
Take home = £3,200/month

Ltd Company monthly withdrawal (me) = £4,200/month

Therefore, joint take home is approx £7,400/month

Current Savings = £25k (increasing by £4k / month)

Current house:
Value = £220k
Outstanding mortgage = £140k (18.5years remaining)
Therefore, equity = £80k
Current Mortgage payments = £800/month

Further debts:
0% credit card = £11k total (can be cleared from savings)
= £110/month
PCP on car = £80/month

Using the current lenders website, based on salary 1 alone, we can borrow an extra £90k which would put us at a total of £310k total purchase price. However, the houses we’re looking at are tending to be closer to £400k so in theory we want to borrow an extra £90-100k.

Using the same lender:
The mortgage repayments for a £310k purchase would be approx. £1,100/month for a 5y fix.
The mortgage repayments for a £400k purchase would be approx. £1,500/month for a 5y fix.

So the difference is £400/month which is approximately 10% of what I take out of the Ltd company monthly.

So after all of that, my question is, would using a guarantor be likely to secure an extra £400 - £500 / month from a lender? Is that how it works? The inlaws own their own home and have substantial savings so I don’t think there would be any issue with using them for this?

Thanks.

Find a lender who will take your Contractor income into account..........your current lender may not, others will potentially......

[tails009]

Thanks guys,

so even with less than a year contracting and no income for the preceeding 2 years, there are some that will lend?

Another issue is that I am in the middle of a fixed rate with ERCs attached. Is it generally possible to obtain lending from another provider whilst porting an existing mortgage?

finally, are there any specific downsides to having a guarantor?

We haven't seen a specific house yet so we are in no rush, it's more just getting an idea of what would be the right route should a house come up.

Thanks again.

[Sarnie]

tails009 said:

Thanks guys,

so even with less than a year contracting and no income for the preceeding 2 years, there are some that will lend?

Another issue is that I am in the middle of a fixed rate with ERCs attached. Is it generally possible to obtain lending from another provider whilst porting an existing mortgage?

finally, are there any specific downsides to having a guarantor?

We haven't seen a specific house yet so we are in no rush, it's more just getting an idea of what would be the right route should a house come up.

Thanks again.

You would have to incur your ERC.

The downside of a Guarantor is that the maximum age is usually the problem......most mortgages need to be finished before you are 70.........which includes the Guarantors........so if your oldest parent was 60, you'd be limited to a ten year term.

[tails009]

ah, OK... they are both over 70 so that's out!

Thanks for your help.

Edited by tails009 on Thursday 30th May 13:18

[Sarnie]

Even if they were young enough.......it wouldn't increase the lending, they would just be on the hook to make your payments if you defaulted.....