If you’re hoping to get on the property ladder but saving a deposit is proving to be a stumbling block, a family member may be able to help you out financially using a springboard mortgage. Their savings can be used as security for the lender for a set term, earning interest during that time. This enables you to be approved for a mortgage with little or no deposit and you can enjoy sole ownership of your home.
What is a springboard mortgage?
For this type of mortgage, a family member provides security for the lender in the form of savings, which are placed into an account that’s linked to your mortgage. This acts as a springboard for you to get on the property ladder when you’d otherwise struggle to.
Although you are receiving financial help from your family member, you’re the only person named on the deeds so you have sole ownership of your home. This can make a family springboard mortgage a better option for both you and your family member than some alternatives, such as a joint mortgage.
Your family member benefits from interest earned on the savings while they’re held in the account, which is for a short term, such as 5 years. As such, this can be a good option for a family member who wants to help you buy a home.
How does a family springboard mortgage work?
Instead of giving you a gifted deposit, this arrangement allows your family member to effectively cover your deposit and receive their funds back after a set term. They need to provide funds that are at least 10% of the property’s value.
These are held in a savings account linked to your mortgage for a set term, which is usually 5 years but may be shorter, such as 3 years, or longer, such as 10 years, depending on the lender. The savings earn interest during this time and, at the end of the term, are returned to your family member provided that you’ve kept up with your mortgage payments.
With these funds as security, the risk is lowered for the lender, enabling you to be approved for a mortgage. By the time the security period has ended, you should have repaid enough of the mortgage balance to continue without needing any more security.
How much deposit do you need?
The nature of this mortgage means that you can be approved without having to pay a deposit by some lenders. They are happy to accept your family member’s contribution in place of a deposit. As such, this is a good option if you haven’t been able to save any funds.
Other lenders, however, require you to pay a 5% deposit. This means that the amount you need to borrow – the loan-to-value (LTV) ratio – will be reduced. With a lower LTV, you’ll benefit from a wider choice of deals with better interest rates.
Are there any risks with a family springboard mortgage?
During the term that the savings are held in the account, your family member won’t be able to access their savings. Their funds are also at risk if you fail to make your mortgage payments. Depending on the shortfall, they may lose some or all of their savings.
Without putting down a deposit, you’ll pay a higher interest rate as there’s a greater risk for the lender. You’re also at risk of going into negative equity should property prices drop in the future.
Can you get a springboard mortgage with bad credit?
Whilst a family springboard mortgage offers a solution if you don’t have a deposit, what about if you have a bad credit rating? It is possible to be approved for a family springboard mortgage, depending on the credit issue and the lender’s criteria.
Having financial help from your family member can actually increase your chances of being approved for a mortgage compared with applying for one on your own. This is because their savings offset some of the lender’s risk. The lender will consider different factors relating to your bad credit, such as the type of credit issue, the amount and how long ago it occurred.
Bear in mind that if you’re approved for a mortgage with bad credit, you may have to pay a higher interest rate. Also, the lender may offer you a lower loan amount to help reduce their risk.
Get help buying a home with a family springboard mortgage
Our mortgage brokers are here to help you decide whether a family springboard mortgage is the best solution for you. They can discuss this type of mortgage in detail with you as well as the alternatives, such as a guarantor mortgage or joint borrower sole proprietor mortgage, to help you make an informed decision. They can also advise you on ways to improve your credit score before applying to benefit from better deals. Just give us a call on 01322 907 000 to speak with one of our mortgage experts.