Family Offset Mortgage

Anyone can apply for a family offset mortgage. However, different lenders have a range of criteria regarding who can provide offsetting savings. For instance, Barclays and Nationwide do not allow anyone who is not a legal relative to be involved, whereas other lenders are more flexible and will allow a friend’s savings to offset a mortgage.

As with other mortgage types, lenders have their ways of assessing risk amongst applicants. If the person applying has a poor credit rating or they are planning to buy a non-standard property, the lender may consider this to be a higher risk transaction. In these situations, the buyer may have a smaller selection of family offset mortgage options.

Typically, the minimum amount of savings required from a family member for a family offset mortgage will be around 5% – 10% of the value of the property. So, for a £300,000 house, your parents will need to transfer £15,000 – £30,000 to a savings account with the provider that will be linked to your mortgage.

Some lenders may require that your parents must have a specific minimum amount in savings whatever the property price may be, or a minimum annual income. As an example, some high street mortgage providers need the family member to have a minimum of £50,000 in savings or an annual income of at least £75,000.

The family member will receive their savings back once certain lender criteria has been met – e.g. the borrower has paid off 30% of the mortgage loan amount. However, the family member won’t be able to withdraw any of the savings held the linked account before then.

Your John Charcol mortgage adviser will help you figure out if a family offset mortgage is a suitable option for you and your family member. Contact us on 0808 271 4723 to learn more about what’s available and which products could work for you.

Family offset mortgages are typically only available as repayment mortgages. This is because not many lenders offer family offsets, or offsets in general, so the options can be limited.

With a repayment mortgage you make monthly payments which comprises both a portion of the capital loan amount and interest amount. This means that every month, you pay off a bit of the amount you borrowed. Typically, once you’ve paid off a certain amount, your family member will have access to their savings in the linked account.

If you fail to make the payments on your family offset mortgage, the lender can retain the family savings, usually until they receive payment. If the property is repossessed, some of the savings may be used to pay off the outstanding mortgage balance.

While there are considerable benefits to taking out a family offset mortgage, there are also some risks associated with them:

• Reliance on family members – due to the nature of this type of mortgage you’re reliant on your relatives to contribute their savings towards offsetting the interest. If your relative experiences financial issues they won’t be able to access their savings until certain lender criteria are met
• Family conflict – if there are any disagreements within the family regarding the mortgage or managing the offset account, this could put the mortgage arrangement at risk
• Insufficient savings – a family offset mortgage is dependent on having adequate savings to offset the interest. If your relative’s savings are not sufficient, they won’t make a significant impact on the mortgage interest
• No access to savings – when a family member’s savings are used to offset the mortgage, they become inaccessible until certain criteria is met, for example, until the borrower has paid off a certain amount of the mortgage. This means that your relative can no longer use these funds, even for emergencies.
• Limited options – not all lenders offer family offset mortgage products, which will inevitably limit your choice, meaning you might miss out on more competitive mortgage deals elsewhere
• Higher rates – offset mortgages can come with higher rates so it’s worth speaking to a mortgage broker to see if you can find a cheaper solution

While it’s good to be as informed as you can by doing your own research online, family offset mortgages are a special class of product which demands support from a mortgage adviser with access to products from across the entire market.

Rather than relying on online research or popping into a high street lender, the best route to getting a competitive family offset mortgage deal is by contacting a broker with specialist knowledge of this mortgage type. At John Charcol, we have a comprehensive view of which lenders offer the best family offset deals and can guide you through each step of the mortgage application process.

There are only a couple of family offset mortgage providers at present such as The Family Building Society. The Family Building Society has 2 options for family offset mortgages – payment reduction offset and term reduction offset. The mortgage term reduction option may mean you can pay off your mortgage years earlier.

Fortunately, there are alternative schemes to family offset mortgages that function in similar ways and can let you borrow up to 100%, such as Barclays’ Family Springboard, Halifax’s Family Boost and Nationwide’s Family Deposit.