These family assisted mortgages allow the buyer’s family to bring their wider assets into the mortgage calculation, helping to reduce the cost for the buyer but not asking family members to hand money over as a gift, or to remortgage.
We regularly work with the Family Building Society which is one of a number of lenders who offer this facility to help first time buyers and their parents or grandparents. Their Family Mortgage allows up to 12 family members to contribute using savings, property or a combination of both to provide security to borrowers.
The Family Building Society’s award-winning Family Mortgage allows family members to combine their finances and assets, helping borrowers to get a place of their own and giving the family their long awaited freedom back.
Most first time buyers only have a small deposit to put towards a home, so they miss out on the better mortgage rates. At the same time, families may have savings and property that could be used as security for a buyer. The Family Mortgage brings these wider family assets into the mortgage calculation, helping to reduce the cost for the buyer but not asking family members to hand it over as a gift.
Key features of the Family Mortgage include:
- 95% LTV subject to 20% additional security from family member(s). The 5% deposit can be gifted.
- Payment waiver built in. The Family Building Society will meet the mortgage payments for up to six months if a borrower loses their job, subject to certain conditions.
- Stamp Duty friendly. The mortgage is in the borrower’s name, so the 3% charge for second properties does not apply.
Family members can use one or a combination of three different ways to provide security to borrowers:
SECURITY THROUGH SAVINGS
If a borrower can find a 5% deposit, from savings or perhaps a gift, the Family Mortgage allows a family member to provide security for the borrower’s mortgage by depositing savings in a Family Security Account. This money acts as security for the mortgage and reduces the risk, so the Family Building Society can offer a lower rate of interest than might otherwise be available*. This reduces the monthly payments for the borrower while your savings continue to earn interest.
SECURITY THROUGH PROPERTY
You don’t necessarily need savings to help someone buy their first home. If a borrower has the 5% deposit, a family member can give a charge over some of the value in their own property. By providing this security, you lower the interest rate that the borrower might otherwise be able to get and so reduce their monthly payments*.
SECURITY THROUGH AN OFFSET ACCOUNT
The Family Mortgage also allows family members to use their savings to reduce the amount of the mortgage on which interest is charged. So instead of receiving interest on the savings (which may be subject to tax) you are passing on a bigger benefit to the borrower by saving them interest on their mortgage. Money placed in a Family Offset Account also acts as security for the borrower’s mortgage. This brings down the interest rate that might otherwise be available*.
* Compared to a standard 95% mortgage without security.
After 10 years the mortgage is reviewed to make sure it’s affordable and meets the lending criteria without the security and off-setting provided by family members.
Family members providing financial support should be aware that if the borrower is unable to meet the mortgage payments, the security they have provided is at risk if the property needs to be sold and there is a shortfall. However, during the first 10 years the Family Building Society does provide the borrower with important protection. Subject to meeting certain conditions, they’ll meet the mortgage payments for up to six months should the borrower become unemployed through no fault of their own on a one-off basis.
If you can’t find the information you are seeking or just want a fuller explanation please call us. We have a number of offices in and around London that may be convenient for you to contact but we will be able to help wherever you are based.