Many of us in our young lives have approached the ‘Bank of Mum and Dad’ for cost-free borrowing.
But while not all parents have an endless supply of funds to prop-up their progeny’s lifestyles, family mortgages can help young people get a head-start in life.
Read on to find out how Family Mortgages work and how they can offer a deposit-raising boost for first time home buyers.
A family mortgage is an offset mortgage option. This is where money in a special savings account can be used to reduce the interest owed on a mortgage, whilst keeping these savings accessible to the borrower.
The family mortgage differs slightly, in that the savings can be used to generate a deposit for a family member to put down on their first home. The child/family member cannot access the funds themselves, however, the banks will recognise this as a deposit when it comes to placing offers on properties.
If you are a first-time buyer with little/no credit history, take a look at our Guarantor Mortgage Guide for tips on how family members can guarantee your mortgage application, as an option.
As family mortgages (AKA Springboard Mortgages, Family Offset etc..) are a type of offset mortgage, they are repaid in the same way. Mortgage terms can run for 20-25 years.
You can choose to repay at a fixed rate, tracker or discounted rate. Whilst you are repaying your mortgage, the money in your savings is used to offset the interest you owe. Funds transferred to a family member’s mortgage are put down as security.
Beryl earns £38,000 pa in her job and has a child she wants to help onto the housing ladder. As a sales manager, she often collects commission and has opened a family offset mortgage to use the commission to bring down her mortgage interest, as well as help her son.
Beryl’s son, David was approved for a mortgage, using a 10% deposit from his mother’s offset account and 5% of his own money. David now pays an interest rate of 2.75%, which is a great deal if you compare the average rates of a 95% LTV mortgage around 3.8% (at the time of writing).
Whether you’re a parent or first-time buyer, getting advice from an independent mortgage broker can help you track down the lowest and best deal for your needs. Get in touch for a free, no-obligation quote.
My biggest concern was finding a mortgage with no strings attached. My options were clearly explained to me and I felt confident about the decision. Alice Silverman, Stoke-on-Trent
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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