What help are guarantors entitled to during coronavirus?
Each year thousands of students and young renters ask a parent or family member to guarantee their rent.
But despite the second lockdown starting on Thursday, there has been no help for tenants announced. As it stands at the moment, renters are still liable for rent payments even if their income has been affected by the coronavirus pandemic.
Landlords can apply for mortgage payment holidays but are not obliged to pass the payment breaks on to their tenants.
If a renter fails to pay and they have a guarantor, the landlord can pursue the guarantor for the money owed.
Naveen Jaspal, chief operating officer at online lettings agency Mashroom, said: “Under rules of the guarantor agreement, the guarantor is liable. However, we encourage tenants and landlords to communicate in order to avoid getting a guarantor involved.
“It should never get to this point as tenants should be transparent and tell the landlord at the earliest opportunity and landlords should be reasonable in working out a solution to avoid needing to get in touch with the guarantor.
“If a landlord is taking a mortgage holiday and the tenant is at risk of falling into arrears, they should both come up with a payment agreement that reimburses the landlord when the tenant is in better financial health. But in this respect, early communication between tenants and landlords is crucial to solve this problem for both parties.”
Guarantors who have guaranteed loan repayments are in a better position. This is because anyone with a guarantor loan can apply for a payment holiday in the same way you can with a credit card or other type of loan.
Alastair Douglas, CEO of finance experts TotallyMoney, said: “When entering into a guarantor agreement, both the borrower and guarantor are legally responsible for making sure the loan gets repaid, and both credit ratings can be affected if either party fails to do so.
“However, with the pandemic having affected the financial lives of many, it won’t be unusual to see more situations where both the borrower and guarantor can no longer afford to repay. If this is you, you need to contact the lender to discuss your options. The FCA has introduced extra measures to help people deal with the financial effects of coronavirus and to ensure lenders treat customers fairly.
“In any case, it’s important you don’t just ignore the problem. Without an agreement in place, non-payment can appear on both credit files, lower credit scores, and make it much harder to get accepted for credit in the future.”
Guarantor lender Guarantormyloan.co.uk offers the following guidance for borrowers struggling with payments: “For the vast majority of people, a reduced payment plan is the best solution as you will continue to pay off the balance of your loan. We will discuss the payment arrangement with your guarantor and ask if they may be able to help depending on their individual financial circumstances. We will always ensure they are aware of any arrangement that we agree with you.”
Looking ahead, it could be much more difficult to take out a guarantor loan in the future. One of the biggest guarantor loan firms, Amigo, has paused offering new loans until 2021 while it deals with a backlog of complaints.