If you want to help your son or daughter buy a home, could a family mortgage that links some of your savings to their mortgage be the answer?
Here, we explain how family mortgages work, who’s eligible to apply for one, and which lenders offer them.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
What is a family mortgage?
If your son or daughter is struggling to save much of a deposit for a property, and you have savings that you don’t need but don’t want or can’t afford to give away, a family mortgage may be an option.
There are different types of family mortgages on the market at the moment, but they work in a similar way:
- The first time buyer saves a small deposit (not all mortgages require this, but most ask for the buyer to have a minimum deposit of 5%).
- Family members transfer some savings into a linked account. Normally it needs to be enough to enable the buyer to borrow no more than 75% of the property’s value, but these limits do vary.
- The borrower is responsible for making the mortgage payments. If he or she does this for a set period (typically three years or so), the family member can withdraw their savings.
- If the borrower can’t pay the mortgage, the family member’s savings could be used to cover these costs.
Family mortgages: pros and cons
Family mortgages can be a good option for first time buyers who can’t save a large enough deposit, but there are potential pitfalls.
Pros:
- The borrower can get a mortgage that they might otherwise not qualify for.
- The mortgage will be at a much lower rate than if you had a small deposit.
- The parent (saver) doesn’t have to give their savings away forever, and – as long as repayments have been made – will get them back at the end of the period.
- The parent will earn some interest on their savings.
Cons:
- If you’re the person providing the savings, you’ll have to be prepared for them to be tied up for a period of several years.
- As the saver, you probably won’t get the best rate on your savings and you may not get any interest at all.
- The mortgage lender has the right to call on your savings if your son or daughter can’t pay the mortgage. Normally this will only happen if the property is repossessed and is sold for less than the mortgage is worth, but terms and conditions do vary.
Family equity or guarantee mortgages
Here the parent/ family member uses some of the equity in their property by letting the mortgage lender take a charge on their home. A charge means the lender has a claim on a limited amount of the family member’s property. Normally the charge will be for 20% or 25% of the purchase price of their son or daughter’s property.
Family mortgages: what’s on offer
There are a number of different providers offering family mortgages. Some ask for savings from a family member to be linked to the mortgage, others allow the lender to put a charge on the family member’s home, for a limited amount (typically 20 – 25% of the purchase price of the buyer’s property). Here’s our round up of some of the lenders currently offering this type of deal. Please remember that this list isn’t exhaustive and deals can be withdrawn at any time. Seek professional advice if you want help choosing the right family mortgage to suit your individual circumstances.
Barclays Family Springboard Mortgage
Your child doesn’t need to have any deposit at all if you, or other members of your family, are able to provide a deposit of 10%, which is held in a savings account for five years before it is returned to you, with interest. The mortgage is on a fixed rate basis for five years and then switches to a lifetime tracker. You don’t have to act as a guarantor (where you become liable for the mortgage in full). However, if the property had to be sold and it sold for less than the mortgage amount, the bank could use your savings to repay any shortfall. You can find out more about the Family Springboard Mortgage here.
Bath Building Society ‘Buy for Uni’ Student Mortgage
If you have a child who is studying at university or who is about to go, one option you might want to consider is a ‘Buy for Uni’ family mortgage.
Bath Building Society’s Buy for Uni Student Mortgage, for example, enables students to borrow up to 100% of the property value. Potential rental income is factored into affordability and it’s assumed that this will be used to pay the mortgage. The mortgage is offered on a ‘joint borrower sole proprietor’ basis, which means the student will be the only borrower on the deeds, but parents will be joint borrowers on the mortgage. If the mortgage is for more than 80% of the property value, then the parents’ home will be used as security, potentially putting their property at risk if mortgage payments aren’t kept up.
Find out more about buying a property for a child at university in our guide Should I buy a property for my student child?
Family Building Society Family Assisted Mortgages
Family Building Society has a range of ‘family assisted mortgages’ which enable family members to support first-time buyers onto the property ladder, either by providing security in the form of cash savings or equity in their own home, or using their income to help with affordability.
Options include joint borrower/ sole proprietor fixed and discounted rate deals, and a five-year fixed rate family mortgage, which allows buyers to borrow up to 95% of the property value, as long as a family member provides security. This can be done in a number of ways. Firstly, they can deposit some savings into a ‘security account’. This works in a similar way to Barclays Springboard mortgage in that the saver earns interest and the borrower pays a lower interest rate. Secondly, family members can use some of the equity in their property as security. This works in a similar way to the savings account described above. A family member can also put some savings into an offset account that’s linked to the mortgage. Any savings held in this account will reduce the amount of mortgage on which interest is charged.
The Family Building Society says it will pay the borrower’s mortgage for up to six months if they lose their job in the first ten years of having their mortgage.
Learn more about Family Building Society’s family mortgage range at Family Building Society.
Vernon Building Society Head Start mortgage
Vernon Building Society’s Head Start Mortgage enables the buyer to purchase a property in their own name with a mortgage of up to 100% of the property’s value. This is done with the support of one or more family helpers who agree to be joint borrowers on the mortgage. The helper will need to provide additional security in the form of a cash deposit or a charge over their own home. This money must be left in the account for five years and will be released, with interest if all payments are up to date after that time. Similarly, if the helper has allowed a charge over their own home this will be removed after five years if all payments have been kept up with.
Find out more about Vernon Building Society’s Head Start mortgages at Vernon Building Society.
Remember…
Family mortgages can be complex, so it’s important to seek advice on all the different options that may be available to you. Read our article Nine ways to help your child buy a home to find out about some of the alternative ways you might be able to help out financially.
If you aren’t sure which mortgage deals you and your child will be eligible for, a professional mortgage advisor can let you know which type of mortgage might be suitable for you based on your individual circumstances. You can read more about how a mortgage advisor might be able to help you in our guide Should I get advice on my mortgage?
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
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