What does being a guarantor mean? Your ultimate guide

Whether you’re a landlord, tenant or have been asked to be someone’s guarantor, we’re here to help clarify what that is, why you might need one and what it means to be a guarantor.

First things first, what is a guarantor?

As a guarantor, you are agreeing to make good any loss a landlord suffers if the tenant fails to meet their contractual obligations. Typically, this relates to rental payments and any damage they cause, which is not regarded as fair wear and tear.

When is a guarantor needed?

Before a tenant moves into a new property, there are a few checks every tenant needs to pass, this is referred to as referencing. Typical checks include, employment, previous landlord, affordability and credit checks. These checks are often undertaken by a third party and allow the landlord to make an informed decision about whether to proceed with the tenancy. In most cases, a guarantor is needed when a tenant fails to meet affordability or credit check criteria and is therefore unconvinced that they will be able to cover the monthly rental payments. To pass the tenant referencing, a potential tenant’s income will typically need to be at least 2.5 times the total annual rent. If this isn’t the case, then having a guarantor will often provide the financial assurance the landlord needs to proceed.

Who can be a guarantor?

Not everyone is suited to be a guarantor. They may have to meet certain requirements, such as living in the UK, being over 21 years of age and having a good credit history.

Guarantors are usually referenced in a similar way as the tenant, albeit the affordability ratio is higher, at a typical 3 times their income. Guarantors are required to confirm their agreement either by signing the Tenancy Agreement or a separate Guarantee Agreement.

Guarantors for different types of tenancies

Students

If a student who intends to live in a shared house asks someone to be their guarantor, and this person agrees, it will usually mean that they effectively become the guarantor for all tenants and are liable according to the terms of the tenancy agreement. Typically, however, each student will have their own guarantor and the risk is spread.

Couples and sharers

When a group of people rent a property and one or more of the group fails to meet the referencing criteria, a landlord will typically require a guarantor(s). As with students, that guarantor(s) effectively guarantees all tenants and is liable according to the terms of the tenancy. With cohabiting couples, an exception may be made where one party passes the affordability test for the entire rent.

Can a guarantor change during a tenancy?

This is unusual and is only usually agreed where a replacement guarantor is found who passes the referencing process.

When does a guarantor stop being a guarantor?

A guarantor's liability usually continues until the tenancy comes to an end and the tenant vacates. If the tenancy has a fixed term which renews, the guarantors obligations will usually continue into the extended term and until the tenancy eventually ends.

What if the tenant can’t provide a guarantor?

If a tenant doesn’t know anyone who meets the criteria needed to be their guarantor, there are other options. One option might be a guarantor service, where the company offering the service becomes the tenant’s legal guarantor. In return, the tenant pays the company a certain percentage of their annual rent.

Being a guarantor

Now moving on to questions that you may be asking yourself about if you’ve been asked to be a guarantor.

Is it risky being a guarantor?

It’s important to know what being a guarantor entails, including any legal implications. Being a guarantor often involves a high level of trust and, as a guarantor, you must accept the likelihood that you could be covering the cost of a tenant breaching the terms of their tenancy, which carries a certain level of risk, depending on your income. For this reason, it’s important to fully understand the liabilities involved and carefully read the agreement before signing it.

Does being a guarantor affect my credit rating?

You’ll typically find that landlords and agents will complete a credit check on the named guarantor to ensure that they are able to cover any rent arrears. This will usually be a ‘soft’ credit check, which will not impact your credit score. Read more about credit scores and what could affect them here.

How long is a guarantor of a tenancy liable for?

As a guarantor, you should check the agreement between you and the landlord carefully, to ensure you know when your time as guarantor ends. Typically, this will be for the duration of the tenancy, including any extension, renewal or continuation. If you would like to stop being a guarantor, you must come to an agreement with the landlord. Landlords are unlikely to agree unless either a replacement guarantor can be found or the tenants' financial situation has improved to an extent where they meet the referencing criteria.

To summarise

This article provides a general guide to what can be a complicated matter, and is in no way exhaustive in terms of options and considerations. Anyone contemplating being a guarantor should ensure they are clear on their obligations, be prepared to pay when required, and seek legal advice if they are at all unclear.