Your legal obligations as a guarantor
As a guarantor, you are legally committing to cover the borrower’s mortgage payments if they cannot make them. This is not a symbolic gesture — it is a binding legal agreement. If the borrower misses payments, the lender will pursue you for the outstanding amounts.
Your obligation can extend to the full mortgage debt, not just the missed payments. If the borrower’s property is repossessed and sold for less than the outstanding mortgage balance, you could be liable for the shortfall. This is known as a shortfall debt and can be a substantial amount.
Impact on your own borrowing capacity
When you act as a guarantor, the mortgage you’re guaranteeing is treated as a contingent liability on your own financial profile. If you apply for a mortgage, loan, or credit card, the lender will see that you have a potential obligation to cover someone else’s mortgage.
This can reduce the amount you can borrow in your own right and may affect your ability to remortgage your own home on favourable terms. Some lenders may decline your application entirely if they consider the guarantor commitment to be too large relative to your income.
Risk to your property
If your guarantee is secured against your own property, the lender has the right to pursue your home if the borrower defaults and the sale of their property does not cover the debt. In extreme cases, this could mean your own home is at risk of repossession.
Even with savings-based guarantor mortgages, your deposited funds are at risk. If the borrower defaults, the lender can use your savings to cover the shortfall, and you may not get them back in full.
Relationship considerations
Money and family can be a difficult combination. If the borrower struggles with payments and you are called upon to cover them, it can create tension and resentment. Before agreeing to be a guarantor, have an honest conversation about expectations, what happens if things go wrong, and whether both parties are genuinely comfortable with the arrangement.
It is also worth considering what happens if the borrower’s circumstances change — for example, if they separate from a partner, lose their job, or want to take on additional debt. As guarantor, you have no control over these decisions but may bear the financial consequences.
Protecting yourself as a guarantor
If you decide to proceed, take independent legal advice so you fully understand your obligations. Make sure the borrower has adequate income protection or life insurance to reduce the risk of missed payments. Ask your adviser about time-limited guarantees that release you once the borrower’s equity or income reaches a certain threshold.
At Clearview Mortgage Solutions, we ensure that guarantors understand exactly what they are committing to. We explain all the risks clearly and help both parties find an arrangement that works. Contact us for a free, no-obligation conversation.