Q. As I plan to purchase my first home this year, my mother is unable to provide a direct financial contribution but is considering acting as a guarantor on a mortgage.

Although she is retired and doesn’t earn a traditional salary, she possesses a substantial investment portfolio and lives off the income generated by these investments. Will this affect her ability to be a guarantor? Additionally, will her sizable investment assets (approaching seven figures) be advantageous with the mortgage lender? Frances, London

It’s increasingly common for parents to assist their kids in entering the property market. Given the sharp rise in house prices compared to wages, many first-time buyers find it increasingly challenging to purchase property. The disparity in affordability has become a prevalent concern in the housing sector, especially in regions with high demand.

Following the financial crisis of 2008, there has been a transition from the traditional guarantor mortgage — where someone guarantees to cover payments if the borrower defaults — to what’s known as joint borrower sole proprietor mortgages. This change has arisen mainly due to updates in mortgage regulations, shifts in affordability assessments, and changing lender and borrower preferences.

A joint borrower sole proprietor mortgage permits another individual to co-apply for the loan. This arrangement increases the borrowing potential by factoring in all applicants’ incomes, while only one individual (the sole proprietor) will hold ownership of the property.

This type of mortgage is particularly appealing to first-time buyers relying on family support to enhance their borrowing capability.

Whether your mother can serve as a guarantor and be included in the mortgage will depend on the lender’s specific requirements. Most lenders offering joint borrower sole proprietor or guarantor mortgages typically prefer guarantors to demonstrate consistent revenue from “earned income.”

While your mother’s absence of a conventional salary may raise concerns for some lenders, the income from her significant investment portfolio might be sufficient for others. The lender may consider her self-assessment tax return, if available, as proof of her investment earnings (depending on the income type). Otherwise, lenders might estimate that she withdraws approximately 5 percent annually from her investments when assessing her income.

Be prepared for lenders to evaluate your mother’s financial stability, which includes reviewing her credit rating, the nature of her investments, and any outstanding debts. Her age may also play a role in the lending decision, as some lenders may only approve interest-only mortgages for applicants up to age 70, while capital repayment mortgages could be available for individuals up to 75 or older.

Parents can also help by providing cash for a deposit. Although you mentioned that this isn’t feasible for your mother, should circumstances change, it could enable you to purchase a more expensive home or secure a more favorable mortgage rate since lower loan-to-value mortgages (where the loan represents a smaller percentage of the home’s value) often come with the best rates.

Financial institutions are eager to lend to first-time buyers as they represent a significant segment of the housing market. However, each lender has distinct criteria, and each buyer has unique needs. Consulting a mortgage broker could prove beneficial, as they can navigate the available options to find a deal tailored to your specific situation, particularly for those unfamiliar with the mortgage process.

Adrian Anderson has two decades of experience in the mortgage industry and currently serves as the managing director of Anderson Harris.