Is a Family Springboard Mortgage Right for Me?
Written on 11 November 2019 by
Currently, over a third of first-time buyers in England are now turning to family for financial aid when it comes to buying a home, with family springboard mortgages being an obvious choice to help them get on the property ladder. It’s important to note that although most of us know these as family springboard mortgages, they’re actually a form of family deposit mortgages.
What Is A Family Deposit Mortgage and How Does It Work?
Finding enough money for the deposit can be one of the biggest barriers for those trying to get on the property ladder. As property prices continue to increase, so does the amount of deposit required. This is making it even harder for buyers to generate the funds they need, without any help.
A Family Springboard Mortgage offered by some lenders, like Barclays bank, allows family members to help each other get on the property ladder. Other banks do offer a similar type of mortgage, but under different names, for example Lloyds offer the “Lend a Hand Mortgage”, and Halifax offer the “Family Boost Mortgage”.
The way in which these mortgages work is, the borrower takes out a mortgage that’s up to 100% of the property price. The family member will then open a savings account linked to the mortgage with the lender. They’ll put at least 10% of the property purchase price into this savings account as security on the mortgage – effectively creating a deposit. The homebuyer can then apply for the mortgage, which can be 100% of the purchase price, thanks to the ‘deposit’ the family member has put into the savings account. In most cases actual 100% mortgages are no longer offered by lenders. The difference with this form of 100% mortgage is that there is extra collateral in the form of the family members home or savings.
The family member cannot withdraw the funds until the fixed term, typically 3-5 years, has been completed. So long as the monthly payments are kept up, the family member will then receive their money back, often with some interest.
- The first-time buyer wants to purchase a property for £200,000 – with as little as 0% deposit
- The family member will contribute 10% purchase price of the property - £20,000 – into specific account with the lender
- The lender will then have the £200,000 property PLUS £20,000 deposit from family as collateral for a £200,000 mortgage debt
- The buyer keeps up their mortgage payments over all their initial fixed period
- After the 3-5 year term, the mortgage payments will continue, but the family members money will be released and returned with interest
This makes quite an appealing option for parents, as they’ll be able to help their child, whilst earning a bit of interest. Their money will be returned after a relatively short period of time, rather than being ‘tied up’ in the actual property until sale.
What Is the Process of Taking Out a Family Deposit Mortgage?
Before starting the process, it may be beneficial to use our Mortgage Borrowing Calculator to get an estimate of how much a lender is likely to actually lend.
1. Discuss with a Mortgage Adviser
Here at John Charcol we want to make the mortgage process, as simple as possible for you. If you enquire online or contact us on 03304 332 927 we can guide you through the entire process. During your conversation with an adviser you may need to provide:
- Proof of identity
- Proof of income
- Proof of address
- Recent statements i.e.. current accounts, loans or credit cards
2. The Application
Once we have found the best mortgage, we’ll contact the recommended lender for a Decision in Principle, where the lender will credit search and credit score you to let you know if you are approved for a mortgage and how much you could borrow. Once the DIP is secured we’ll start compiling your official application with all the correct documentation. When we have everything together, we’ll submit your application to the lender on your behalf. It is at this stage that the lender will do additional underwriting checks including a valuation on the property.
3. Your Offer
Once you’ve passed any initial affordability and documentation checks, and the lender has valued your property, your lender will send you the legally binding mortgage offer. Once the solicitors are ready to exchange contracts you will set a date for completion, which is when the mortgage money is actually paid to the vendor’s solicitor and you’ll be ready to move in.
Once the family members’ funds are sent to the lender to be placed in the linked savings accounts, the lender will be ready to release the mortgage money to the solicitor. Assuming your solicitor has already exchanged contracts then they will request the mortgage money from the lender to buy the property for you.
What Happens to My Parents Money If I Miss My Mortgage Payment?
The same with any mortgage, payments must be made on time. If you’ve taken out a Family Deposit Mortgage and you’re unable to make your mortgage payments, your friends or family’s money could possibly be held on to for longer, until the repayments are up to date.
Some lenders state that if three or more payments are missed, the funds are likely to be retained until the mortgage account is up to date, and there are no missed payments for 12 months. If the property is repossessed, funds in the linked savings account can be used to pay for any losses.
If you’d like any more information on Family Deposit Mortgage or other options available to parents who want to help first-time buyers, don’t hesitate to get in touch. Simply call us on 03304 332 927 or submit an enquiry.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.