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Help your child onto the ladder AND beat your savings rate

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22/07/2020
Parents can now earn competitive rates of interest on their money while helping their children buy their first home
Help your child onto the ladder AND beat your savings rate

The Bank of Mum and Dad can now help themselves while they support their children onto the ladder, by beating the savings rates available to them on the high street, said Moneyfacts.

It found that many aspiring homeowners are turning to their parents for support buying their first home, especially since low deposit mortgages have been restricted by lenders.

One way parents can help is to put down their own savings as security against the mortgage, held in a savings account with the mortgage lender.

In doing so, they can benefit from more attractive rates than they would otherwise find, said the financial information provider.

Superior savings

Moneyfacts noted that savings rates are low with current average rates across the various types of accounts all below 1% for the first time since records began.

So, while parents may be finding it hard to get a decent savings rate in the current climate, they might find the rates on a guarantor-style mortgage offer a better home for their money – and give their kids a boost onto the ladder.

Here’s how.

The 95% Barclays Family Springboard mortgage for example, is priced at 2.85% for five years and requires the borrower to put down 5% deposit, with their family member then putting a further 10% of the purchase price into a Helpful Start savings account, also for five years.

If all mortgage repayments are met, the helpful family member will receive their money back, with interest at the end of the five years. Currently paying 1.60%, this is 0.10% higher than the top five-year fixed rate bond available on the wider market of 1.50% and higher than best buy instant access savings at 1.15%.

Eleanor Williams, finance expert at Moneyfacts, explained: “With savings rates continuing their downward trajectory, Mum and Dad may be struggling to get a competitive return on their own savings pot at the moment. Here, a guarantor mortgage such as the Barclays Family Springboard mortgage product would be another route that may actually be of benefit to both parties.

“A first-time buyer that takes out the Barclays Family Springboard mortgage could see a monthly reduction in outgoings of £165.24 less per month than they could face on the average rental payment, and over the five-year term lower outgoings to the tune of over £9,000.

“Overall, both the home buyer and the Bank of Mum and Dad could come out of this better off.”

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