A family springboard mortgage is a great way to buy a home when a loved one is able to help you out with the deposit. You’ll enjoy sole ownership of your home and they’ll get their money back after a fixed term with added interest. But are springboard mortgages only for first-time buyers or can you take advantage of one if you’re a home mover?
What is a springboard mortgage?
A springboard mortgage enables a family member or friend to give you a helping hand when buying a property by using their savings or equity as collateral. With their funds acting as the equivalent of a deposit, you can borrow up to 100% of the property’s value, depending on the lender. Your family member’s funds, therefore, act as a springboard to help you get onto the property ladder.
Are springboard mortgages only for first-time buyers?
Whilst this type of mortgage is predominantly aimed at first-time buyers, you can also use it as a home mover. Circumstances change and you may already be a homeowner but need to move on from your current property. For example, you may be ready to start a family and want a bigger home. Including your family member’s funds in the mortgage calculations can give your budget the push it needs to be able to afford a more expensive property.
Who can help you?
Whilst some lenders only accept close family members, other lenders have less stringent criteria. Some allow any family member to help you and some also allow friends to help. You’re also not restricted to help from just one person.
How does a springboard mortgage work?
Your family member needs to provide at least 10% of the purchase price as security for the lender. If using savings, they are held in a savings account that’s linked to your mortgage. The funds are held for a fixed term, such as 5 years, and earn interest during that time.
Most lenders are happy to consider the 10% funds as your deposit. This is ideal if you haven’t been able to save anything. Some lenders may still require a deposit, such as 5% of the purchase price. If you’re already a homeowner and have built up some equity in your current home, the additional funds from your family member can significantly increase the amount you can borrow for a new home.
Although the funds have been contributed by your family member, the mortgage and property deeds are in your name only. This means that you benefit from sole ownership of your new home.
What happens at the end of the fixed term?
By the time the fixed term has ended, you will have repaid a sufficient amount of the mortgage loan. This will enable you to take over the mortgage without the need for your family member’s funds to be held any more. As you’re considered less of a risk to the lender and warrant a lower loan-to-value ratio, it’s advisable to arrange a better deal at this point. You can either do this via a product transfer with your current lender or by remortgaging to a new lender.
At the end of the fixed term, assuming you’ve kept your mortgage payments up to date, the funds will be returned to your family member along with the interest earned on them. This arrangement can be preferable to someone who wishes to help you out compared with some alternatives. Their funds are only tied up for a short term and earn interest during that time, unlike a gifted deposit. They’re also not named on the mortgage or deeds so won’t have the liability issues that other mortgages present, such as a joint mortgage.
Get a helping hand with a springboard mortgage
If you have a family member or friend who’s ready to help you out and a springboard mortgage sounds like the ideal solution, give us a call on 01322 907 000. Our expert brokers are ready to discuss your circumstances and provide impartial advice on springboard mortgages and the alternatives. That way, you can ensure you make the right decision for your needs. They can compare the deals available and search for the best rates and most flexible terms for you.