How to get a mortgage with family help
Most first-time buyers receive financial assistance from their family these days. But the Bank of Mum and Dad does not have to hand over its savings direct in order to help you out. A number of lenders have created innovative deals which allow parents and carers to use their savings or equity in their property to underwrite your borrowing, without giving it away.
One option is Woolwich’s Family Springboard mortgage, which allows a borrower to use a relative’s savings as security against their home loan. This means the lender is happy to offer a lower mortgage rate which in turn means more affordable monthly repayments. To get this mortgage you will need to have a 5% deposit and parents, or another relative, willing to put 10% of the purchase price of your home into a savings account which cannot be touched for three years.
After that time, they will get their cash back plus interest (currently 2%) and you will move onto Woolwich’s Standard Variable Rate (SVR) or be free to remortgage to a new deal. The mortgage is cheaper than those available through Help to Buy, and as a result it should be easier to prove that you can afford it.
However the savings commitment – £20,000 on a typical first-time buyer property price according to the ONS’s index – will rule it out for some families. An alternative is Aldermore’s Family Guarantee loan.
This does not require a lump sum to be provided by the guarantor, but a legal charge against their own property.
This allows relatives to help both first-time buyers and movers without needing any ready cash – instead, Aldermore is listed as a second charge against the guarantor’s property (their own mortgage lender has first charge). The mortgage also does away with the need for any deposit. This particular mortgage is available up to 100% borrowing if required – although care should be taken when considering loans of this proportion.
Aldermore applies an age limit on the guarantor – they cannot be older than 70 at the end of the 10-year guarantee period – which may rule out some family members.
Bath Building Society offers a similar deal through it Parental Assistance Mortgage Scheme, but with an option that makes it even more useful: in some circumstances the society will take into account rental income when assessing affordability. That means you can use a lodger’s rent to help you buy.
The scheme involves your parents guaranteeing up to 25% of the value of your property with their home, and their own mortgage, if they still have one, must not be more than 65% LTV. Your home must be within 30 miles of your workplace, but can be anywhere in England and Wales. It is important that the parents understand that by using equity as security there is a chance that they could put their property at risk in the worst case scenario.
Family Building Society offers first-time buyers with a range of options: they can use a relative’s savings or property equity to help secure a 95% mortgage or a combination of both. Relatives can opt to receive interest, or forego it and reduce the size of mortgage that the buyer pays interest on.
However, the amount they need to stump up is higher than on the Woolwich mortgage – the total secured on property can only be 75% LTV, so a buyer with a 5% deposit needs someone to deposit the remaining 20%. The society offers its Family Mortgage and Family Offset on properties costing £125,000 or more.