Family Deposit Mortgages
There is a continuous effort from mortgage lenders to bring new mortgage products to the market. With such a strong national focus on offering help to first-time buyers, lenders have made moves to adapt to this demand. For example, Barclays have updated their old ‘family springboard mortgage’, and many lenders are now offering so-called ‘family mortgages’.
First-time buyers and home-movers are now able to borrow anything up to £500,000 with family or friends assisting them. What’s more, there will be no need for a deposit. These kinds of deals are an excellent platform for buyers to get on the housing ladder.
Similar schemes are on offer from lenders like Halifax, Lloyds Bank and Nationwide. Learn everything you need to know about family mortgages from Think Plutus, including springboard mortgages. Our advisers are just a phone call away if you have any further questions.
What is a family springboard mortgage?
This is a type of loan used to buy a home with savings from family and friends to help. The funds stay in a savings account for 5 years, and must amount to at least 10% of the total value of the home you are buying.
This type of mortgage is available to first-time buyers and homeowners. Other ‘family mortgage’ products exist, but the springboard model is the deal offered by Barclays. The main advantage of this option is that you will find 0% deposit options. As an incentive for the family or friends that help you, their savings will earn interest as they provide security for lenders.
How does a springboard mortgage work?
This mortgage differs from other family products since, rather than involving a ‘deposit gift’, funds are placed in a savings account attached to your mortgage. This acts as the lender’s security in the event you fail to keep up with repayments.
The savings must amount to 10% of the property price, similar to a deposit. Thus, for a home worth £300,000, the savings account must contain at least £30,000.
The mortgage term will be longer than 5 years, but your helper will have their money returned to them after the first 5 years have passed. There will even be interest added on top, amounting to 1-2% above the Bank of England base rate.
After making mortgage repayments for 5 years, enough should have been paid to remortgage to a conventional deal. This is because at least 10% of the total mortgage will have been repaid over those 5 years, meaning the property has some equity.
How much is available with a springboard mortgage?
Barclays lends up to 5.5x your income for anyone who earns £50,000+, whether that’s a single or combined income. If your earnings are below £50,000, you can borrow up to 4x your income.
This means that if you have an income of £50,000, you could borrow up to £275,000 (£50,000 x 5.5).
If your earnings were £30,000, the maximum you could borrow would be £120,000 (£30,000 x 4).
What other family mortgage deals are available?
The family springboard mortgage from Barclays is just one of various family mortgage options. Most family mortgages are quite similar, but different lenders will offer different rates. It’s good to know about all the options to ascertain which is best suited to your situation.
Nationwide family deposit mortgage
Nationwide Building Society offers family deposit mortgages. For you to be eligible, your helper must already have a mortgage with Nationwide. Your helper won’t need to deposit funds into a savings account; instead, the equity in your helper’s home would be used as security for the loan.
There is an element of risk in this, because if you fail to meet your repayment requirements, your helper’s home could be forfeit. That said, your helper will not be required to give up any savings, and this can be a significant benefit. Helpers can only be family members with this product.
Halifax family boost mortgage
Family boost mortgages are offered by Halifax. They closely resemble the Barclays springboard mortgage, but the savings are held in an account for 3 years, rather than 5.
Helpers have to be family members, but it is possible to have more than 1 family member as a helper. Every helper involved has to be named on the attached savings account.
The family boost mortgage is a good option when your helper doesn’t want to be without their savings for 5 years. You should be aware that your mortgage payments will be higher, as longer mortgage periods spread the repayments out over more time, meaning each payment is lower. This is worth considering if you want to keep your monthly payments low.
Lloyds lend a hand mortgage
The lend a hand mortgage from Lloyds is similar to the Halifax family boost mortgage.
Family members will be required to place 10% of the property’s value in a savings account for a period of 3 years. They will have no access to those funds for that 3-year period. After those 3 years, the 10% sum is returned to your helper plus interest.
You can also put down a 5% deposit yourself, but it isn’t mandatory. The lend a hand mortgage is available for 100% of the property value, so a deposit isn’t required.
The interest rate is fixed for 3 years, so you’ll know how much your mortgage will be, and rises in interest rates will not affect you.
Post Office family link mortgage
Post Office Money offers family link mortgages that are similar to the Nationwide family deposit products.
The Post Office will lend up to 90% of the overall property value to first-time buyers. The other 10% is covered by the equity in your helper’s property. To qualify, your helper’s property must be unencumbered (mortgage-free) and you have 5 years to repay that 10%. The rest of the mortgage term is designated to repay the remaining 90%.
The Post Office only offers this mortgage product with the help of family members – friends can’t be helpers. Your annual earnings must be at least £20,000 to be eligible.
Rates for family mortgages
The rates for family mortgages currently stand between 2% and 4%. This is slightly higher than average, due to the fact that lenders are fronting 100% loan to value mortgages.
A 100% mortgage is a significant risk to both borrower and lender. This is because a drop in the value of the property would result in negative equity. Some lenders will provide cashback as an incentive to borrowers – with Lloyds Bank, there is an offer of £300 cashback, and with the Post Office, the cashback offer is £500.
These types of offers can ‘sweeten’ the deal, but the real important thing is to access the best rates available to you. To get this right, speak to one of our advisers so that we can assess your situation and identify the best deal.
Family mortgage loan alternatives
There are other ways for family members to help you onto the property ladder. For example, they can act as guarantor for a mortgage application, providing that all-important security for your lender. A guarantor can be helpful if your income is relatively low or you fall just short of affordability.
Your guarantor would be the security for the mortgage, which is not unlike a family mortgage. In essence, a family mortgage is a form of guarantor mortgage. The only difference is that the security is put into a savings account, rather than the guarantor putting themselves forward as security.
Another alternative is a gift of a deposit from family members. Where this differs from a family mortgage is that when the deposit is gifted, it doesn’t have to be returned. It may feel easier for family members to agree to a family mortgage arrangement, as they know their money will be returned to them in 3 or 5 years, depending on the mortgage product you choose.
Mortgage advice for families
Whether you’re the helper or the one receiving help, it’s good practice to speak to an adviser before committing to anything.
As you can see from this page, there are various options that must be considered. Our advisers will gain a strong understanding of your circumstances, and will then be able to zero in on the best deals available for you.
Though a 3-year fixed option may seem better than the 5-year one, there are situations where this will not be the case. You may need lower payments spread over a longer period. Some borrowers need security, while others will want to move beyond that initial period as fast as possible to return the funds to their helper.
Make an enquiry with Think Plutus today to ask your questions, and we’ll get the ball rolling on finding you the right deal.