Last Updated on 15th September 2020
Mortgage lenders are constantly introducing new mortgages to the market. With so much help available for first-time buyers, it seems lenders have adapted to the demand. Barclays for instance, have made a few changes to their existing ‘family springboard mortgage’. Furthermore, there are a number of lenders offering ‘family mortgages’.
It’s now possible for first-time buyers and home movers alike, to borrow up to £500,000 with the help of family or friends. And, you won’t need a deposit. Such deals are highly recommended platforms to enable buyers on to the housing ladder.
There are other similar schemes available from lenders such as Halifax, Nationwide and Lloyds Bank. This guide will explain everything you need to know about family mortgages, including springboard mortgages. Our advisors are also on hand to help answer questions that you may have.
What is a family springboard mortgage?
A family springboard mortgage is a loan which is used to purchase a home with the help of savings from family or friends. Funds are held in a savings account for five years and must be at least 10% of the home value that you’re purchasing.
The mortgage is available to homeowners and first-time buyers. Although there are other ‘family mortgage’ deals available, the family springboard mortgage is a particular deal that Barclays offer.
The main advantage of a springboard mortgage is that there are 0% deposit options available. An incentive for family or friends helping you is that their savings earn interest whilst providing lenders with security.
How does it all work?
Rather than receiving a ‘deposit gift’, funds are transferred into a savings account that is linked to your mortgage. This then provides your mortgage lender with security; in the event the loan isn’t repaid.
Savings must be the equivalent to a 10% mortgage deposit. For instance, if you’re purchasing a home worth £250,000 then the savings account must contain £25,000 minimum.
Although your mortgage term will exceed five years, money from the savings account is returned to your helper after five years. Not only that, but the money is returned with interest on top. This can vary between 1-2% above the Bank of England base rate.
After five years of mortgage payments, you should have paid enough to then remortgage to a regular deal. This is because you’d have repaid at least 10% of the mortgage over five years so you’d have some equity in the property.
How much can I borrow on a springboard mortgage?
Barclays will lend up to 5.5 times your income if you earn £50,000, whether it’s a single or combined income. If you earn less than £50,000 then you can borrow up to 4 times your income.
For example, if you and a partner have a combined income of £60,000, you’d be able to borrow £330,000 (60,000 x 5.5 = 330,000).
If you earn £40,000, you’d be able to borrow £160,000 (40,000 x 4 = 160,000).
What other family mortgage deals are available?
A family springboard mortgage is just one of many family mortgages on offer. Although family type mortgages are very similar, you may find a better rate with a particular lender. Furthermore, you may find that another mortgage is just better suited to your circumstances.
Halifax family boost mortgage
Family boost mortgages are available with Halifax. They are very similar to springboard mortgages from Barclays. The main difference is that funds are held in a savings account for three years and not five years.
Helpers must be family members, however, you’re able to have multiple family members helping you. Nonetheless, each helper must be named on the Halifax savings account.
The family boost mortgage can be better suited if your helper doesn’t want to wait five years to receive their funds back. That being said, your mortgage payments may be higher as the initial period is three years as opposed to five years. Longer mortgage periods mean that repayments are spread out over a longer period of time. This can make them cheaper on a month to month basis.
Nationwide family deposit mortgage
Family deposit mortgages are available with Nationwide Building Society.
Your helper must have an existing mortgage with Nationwide for you to be eligible for a family deposit mortgage. Furthermore, your helper wouldn’t need to deposit any funds into a savings account. Instead, Nationwide would use the equity in your helper’s home for security.
This is quite risky, as if mortgage repayments aren’t met, your helper could lose their home. On the other hand, your helper won’t have to part with any savings to help you which can be a great benefit. Helpers must also be family members and can’t be friends.
Post Office family link mortgage
Family link mortgages are available from Post Office Money and are very similar to Nationwide’s family deposit mortgages.
The Post Office will lend first-time buyers 90% of the overall property value. The remaining 10% would come from the equity in your helper’s property. The property must be mortgage-free and you’d have five years to repay the 10% back. The remaining 90% can be repaid over your entire mortgage term.
The Post Office insists that helpers must be family members and not friends. You’ll also need to be earning £20,000 to be eligible for the mortgage.
Lloyds lend a hand mortgage
Lloyds bank offers a ‘lend a hand mortgage’ and it’s very much similar to the family boost mortgage from Halifax.
Family members will have to place 10% of the overall property value into a savings account for three years. They won’t be able to access the funds for the initial three-year period. Once the three years is up, your helper would get there 10% back plus interest.
You can put a 5% deposit down yourself, but that’s optional. Lend a hand mortgages can be used for 100% of the property value, so you won’t need a deposit.
With a fixed-interest rate for three years, you’ll know exactly how much your mortgage will be and you’d be protected from any rise in interest rates.
Family mortgage rates
Family mortgage rates are currently between 2% and 4%. The reason that rates can be slightly higher than average is that lenders are providing 100% loan to value mortgages.
100% mortgages are a big risk to both you and your lender. This is because if there was a drop in the market value of your home, you’d be in negative equity.
Some mortgage lenders may provide cashback to incentivise borrowers. For instance, you’re able to get £500 cashback with the Post Office and £300 cashback with Lloyds Bank.
Offers such as these can ‘sweeten’ the deal but if you really want the best rate then speak to an advisor. We’ll assess your situation and then find the best deal based on what you need.
Alternatives to family mortgage loans
Family members are able to help you on to the property ladder in more than one way. For instance, a guarantor would guarantee the mortgage providing security for your lender. Guarantors can be quite useful for when you don’t earn a huge amount or fall short of affordability.
Guarantors would then offer security for the mortgage, very much like family mortgages. In fact, a family mortgage is a type of guarantor mortgage. The difference is that security is placed in a savings account, rather than the guarantor themselves acting as security for the lender.
Another alternative is where family members gift you a deposit. The main difference between a gifted deposit and a family mortgage is that once a deposit is gifted, it doesn’t need to be returned. As a result, it may be easier for helpers to agree to a family mortgage as they know they’ll get their funds back in either three or five years (depending on which mortgage you choose).
Mortgage advice for families
Whether you’re helping a buyer or getting help, speak to a specialist before making any decisions.
As we’ve outlined in this article, there are a number of options to explore. Once our advisors understand your situation, they’d then be able to pinpoint the best deals for you.
A three-year fixed mortgage may seem better than a five-year deal, but it’s not always the case. You may want lower payments spread over a longer period of time. Some borrowers want security whereas others want to get past the initial period as soon as possible so their helper is able to get their funds back.
You can make an enquiry or call us on 0800 195 0490 to get started.