Are you hoping to buy your first property but just can’t save enough deposit? If you’re lucky enough to have a family member who can help you out, a family springboard mortgage may be just what you need to get onto the property ladder.
With this type of mortgage, your family member places funds into a savings account held by the lender for a specified term and receives them back with interest when that term ends. This enables you to buy a property with little or no deposit and your family member’s funds are not tied up for the long term. At Trinity Finance, we have good relationships with lenders offering this specialist mortgage and can search for the best terms and rates to suit your needs and circumstances.
What is a family springboard mortgage?
As the name of this mortgage suggests, it serves as a springboard to get your foot on the property ladder with help from your family. Also known as a family mortgage, family boost mortgage or family deposit mortgage, family members provide security for the lender, usually in the form of savings, so that you can buy a home. Whilst this type of mortgage is typically aimed at first-time buyers, it’s also available to home movers who need a helping hand to move up the property ladder. Although the criteria differ between lenders, most offer this mortgage up to a property value of £500,000. Despite the fact that you receive financial help from your family, you are the only person named on the title deeds and benefit from sole ownership of your home.
How does this arrangement work?
Your family member – or members, if more than one is happy to help out – provides funds that are a minimum of 10% of the property’s value. These funds are placed into a savings account that’s linked to your mortgage. As security for the lender to ensure the mortgage repayments are met, these savings are held for a fixed term. This is usually 5 years but depends on the lender, with some offering shorter terms of 3 years and others stipulating longer terms, such as 10 years. During this time, the savings earn interest. Assuming you don’t miss any repayments, the funds are returned to your family member at the end of the fixed term along with the interest that has accumulated.
Do you need a deposit?
Some lenders require you to pay a 5% deposit but others are happy to accept the contribution from your family member in place of a deposit. This gives you the opportunity to buy a property when you haven’t been able to save any deposit at all. If you do have savings to use as a deposit, this will reduce the amount you need to borrow – which is called the loan-to-value (LTV) ratio – when added to the funds your family member has paid. The lower the LTV, the better rates you’re offered by lenders.
What happens at the end of the fixed term?
Assuming your mortgage repayments have been kept up to date, your family member’s funds will be returned to them and you’ll be advised to remortgage to a better deal. At that point, a significant amount of the mortgage will have been repaid so that you have equity in your property. The lower LTV ratio required compared with when you originally applied for the mortgage means you can secure a better rate.
What if the mortgage repayments are missed?
Should you miss any of the repayments, the lender may hold your family member’s funds until the payments are brought up to date. In the event that a few repayments are missed, the lender may hold the funds until no payments have been missed within a year. If the property has to be repossessed, the funds belonging to your family member may be used to pay the mortgage arrears. It’s important to note that some lenders accept a family member’s property as security instead of savings. If you fail to make your mortgage repayments, this puts their property at risk as well as yours.
Eligibility for a family springboard mortgage
As mentioned earlier, you can apply for this type of mortgage as a first-time buyer or an existing homeowner looking to move to another property. The same eligibility criteria used for standard residential mortgages are used by lenders. This includes affordability checks that take your income and expenditure into account as well as your credit rating.
Any family member can help you with a family springboard mortgage. Parents or grandparents usually contribute their savings but lenders also allow other relatives to provide the funds, such as aunts and uncles. Some lenders even accept friends for this type of mortgage. Normally, one or two family members supply the funds but some lenders provide more flexibility with various family members being able to contribute funds. Each person wishing to use their savings needs their own account to be linked to the mortgage. Lenders usually insist that the family member agreeing to the mortgage is a homeowner and they may need to meet a minimum income requirement or have additional savings to those used for the mortgage.
Get in touch with our mortgage brokers – located throughout Kent, London and Edinburgh – when you’re ready to apply for a family springboard mortgage. They can check your eligibility and answer any queries you and your family member may have. Providing you with impartial advice, they can discuss the advantages and disadvantages of this type of mortgage as well as the alternatives available to help you make the right decision for your needs. Just give us a call on 01322 907 000 or email us at email@example.com to get started. Alternatively, send your enquiry to us via our contact form and one of our mortgage consultants will reply to you as quickly as possible.
Can the savings account be accessed?
The funds held in the savings account cannot be accessed, even in an emergency, until the end of the fixed term. Should any mortgage payments have been missed up to that point, the lender may delay the return of the funds to your family member, as mentioned earlier. Extra funds cannot be added to the account once it has been linked to the mortgage.
Are there any other restrictions?
Some lenders may not allow you to buy a newly built property with a family springboard mortgage. This is because of the risk of negative equity. This type of mortgage is also intended to help first-time buyers own a home and existing homeowners buy a new home. As such, you cannot apply for a family springboard mortgage to finance a buy-to-let investment.
The pros and cons of a family springboard mortgage
There are advantages and disadvantages to consider for this type of mortgage, just like any other mortgage, for both you and the family member helping you out.
- You can buy a home as a first-time buyer with a small deposit or none at all.
- You can move up the property ladder as an existing homeowner with the help of a family member.
- You have sole ownership of the property.
- The family member can use their savings to help you buy a property while keeping the funds in their name.
- Your family member’s funds are only tied up for a short term.
- The funds earn interest while they are held in the account.
- You can remortgage to a better deal when the fixed term ends.
- The rates offered are typically higher as there is a greater risk for lenders when providing higher LTV mortgage loans.
- You cannot use this type of mortgage to buy a newly built property or a buy-to-let investment.
- Your family member cannot access their savings until the fixed term ends.
- The return of their funds may be delayed if any of the mortgage payments have been missed.
- If you default on your mortgage, leading to your property being repossessed, the lender may use the funds to recover some of the outstanding loan balance.
- If your family member has used their property as security instead of savings, this could be at risk should you default on your mortgage.
- As you have a financial association with this mortgage, any arrears can negatively affect both of your credit ratings.
Benefit from the flexibility of a family springboard mortgage
Whether you’re a first-time buyer with a low or no deposit or a homeowner looking to move up the property ladder, you can secure the mortgage you need with help from your family. The savings provided by your family member can significantly lower the amount you need to borrow and improve the rate you’re offered. Not only that but your chances of being approved for a mortgage when you have a bad credit rating or lack of one increase, depending on the circumstances. For a family member wishing to help you out using their savings, they can do so over a short term rather than tying up their funds for a long period and can earn interest on them during that time.
At Trinity Finance, we work closely with lenders offering this niche mortgage. Our mortgage brokers, who are located throughout Kent, London and Edinburgh, can search for the best deal to suit your circumstances and requirements, saving you time, stress and money. They can also advise you of the alternative options available, such as a guarantor mortgage, a family offset mortgage or having a gifted deposit, to ensure you have all of the necessary information at your fingertips to make the right decision for your mortgage.
For impartial advice from an expert broker, simply get in touch with us on 01322 907 000. When you’re happy to proceed, your dedicated broker will tailor your application and oversee the process from start to finish. If it’s out of office hours, send us an email at firstname.lastname@example.org or an enquiry via our contact form and we will reply to you as quickly as possible with more information.