These family assisted mortgages allow the buyer’s family to bring their wider assets into the mortgage calculation, helping to reduce the cost for the buyer but not asking family members to hand money over as a gift. However, if there is a default in the mortgage repayments, the security they have provided is at risk if the property needs to be sold and there is a shortfall.
For family deposit mortgages, savings can be deposited with the mortgage lender to be used as security, and still earn interest. For family offset mortgages, savings are placed in a linked offset account with the lender and, in place of earning interest, the savings reduce the amount of the mortgage on which interest is charged. So instead of receiving interest on the savings, you are passing on a bigger benefit to the borrow by saving them interest on the mortgage. If you don’t want to lock your cash in a savings account you could use the equity in your property as security. However, each set of circumstances will be different and needs to be examined in detail.
We regularly work with the Family Building Society which is one of a number of lenders who offer this facility to help first time buyers and their parents. Their Family Mortgage allows up to 12 family members to contribute using one or a combination of three different ways to provide security to borrowers.
Family Mortgage
The Family Building Society’s award-winning Family Mortgage allows family members to combine their finances and assets, helping borrowers to get a place of their own and giving the family their long awaited freedom back.
Most first time buyers only have a small deposit to put towards a home, so they miss out on the better mortgage rates. At the same time, families may have savings and property that could be used as security for a buyer. The Family Mortgage brings these wider family assets into the mortgage calculation, helping to reduce the cost for the buyer but not asking family members to hand it over as a gift.
Key features of the Family Mortgage include:
- 95% LTV subject to 20% additional security from family member(s). The 5% deposit can be gifted.
- Payment waiver built in. The Family Building Society will meet the mortgage payments for up to six months if a borrower loses their job, subject to certain conditions.
- Stamp Duty friendly. The mortgage is in the borrower’s name, so the 3% charge for second properties does not apply.
Family members can use one or a combination of three different ways to provide security to borrowers:
Family members can use one or a combination of three different ways to provide security to borrowers:
Providing Security for your child’s mortgage
If a borrower can find a 5% deposit, the Family Mortgage allows a family member to deposit savings in a Family Security Account. These savings acts as security for the mortgage, so the Family Building Society can offer a lower rate of interest than might otherwise be available*. This reduces the monthly payments for the borrower while the savings continue to earn interest. However, there are risks – if the house is sold for less that the mortgage value (i.e. there is negative equity), there is a risk that the savings provided by the family member could be lost as they may be used to make up the difference between the sold price and the mortgage value.
Giving security over your Property
You don’t necessarily need savings to help someone buy their first home. If a borrower has the 5% deposit, a family member can give a charge over some of the value in their own property. By providing this security, the Family Building Society can offer a lower interest rate that the borrower might otherwise be able to get and so reduce their monthly payments*. However, there are risks – placing a charge on their property means that if the borrower’s house is sold for less than the mortgage value (i.e. there is negative equity), the family member is responsible for making up any shortfall, up to the value of the charge, while the charge is in place.
Security Through an Offset Account
The Family Mortgage also allows family members to use their savings to reduce the amount of the mortgage on which interest is charged. So instead of receiving interest on the savings, money placed in a Family Offset Account acts as security for the borrower’s mortgage. This brings down the interest rate that might otherwise be available and saves them money*. However, there are risks – if the house is sold for less than the mortgage value, (i.e. there is negative equity), there is a risk that the savings provided by the family member could be lost as they may be used to make up the difference between the sold price and the mortgage value.
Also remember that with any of these options, the property may be repossessed if the borrower fails to pay the mortgage. After 10 years the mortgage is reviewed to make sure it’s affordable and meets the lending criteria without the security provided by family members.
* Compared to a standard 95% mortgage without security.
Contact us
Please contact us if you need to know more. You can fill out our enquiry form and we will get back to you. If you wish to contact the Family Building Society please click here.
If you can’t find the information you are seeking or just want a fuller explanation please call us. We have a number of offices in and around London that may be convenient for you to contact but we will be able to help wherever you are based.
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