Getting a foot on the housing ladder is harder than ever, but there is a way that parents and families can help their children – perhaps those with a young family themselves, even if they can’t offer a large cash deposit…
Parents and family members can help other relatives get their first property, with the help of one of a number of different ‘family’ mortgages. These products are aimed specifically at house buyers who don’t have a large cash deposit at their disposal.
As a result, however, these kinds of mortgages may come with a higher interest rate than your average mortgage, This is because the ratio of the loan to the value of the property is usually higher – the first-time buyer is borrowing all or most of the value of the property. Some lenders may offer a cashback deal as an incentive to take their product, but each product differs, along with the terms and conditions.
This higher interest rate shouldn’t put you off though, it’s just a factor to bear in mind. And for many people, who have been used to high monthly rental payments (often more than their mortgage payments will be), this may not be so much of a concern.
As we always recommend, it’s worth taking some expert, individual advice before you decide on any mortgage deal.
So what is a Family Mortgage?
What a family mortgage does is to use the equity held in a parent or other family member’s house, as the security for this new mortgage. At no time does the parent or family member own any part of the new property – the mortgage will be held in the names of the first-time buyers.
Mortgage offers change all the time, so always check, but at present, there are three different products available in the family mortgage arena:
The Family Deposit Mortgage
This is aimed at those parents or families with an existing mortgage. They do not have to deposit any cash at all – instead the equity in their property is used as the security. Of course, this means that if the mortgage payments are not paid, their home will be at risk – but the advantage is that they do not have to part with any actual cash.
The Family Mortgage
This needs the first-time buyer(s) to offer a 5% deposit (which can be a gift from family) along with security offered in the form of family savings or using a property as security.
Family Springboard Mortgages
‘Springboard’ mortgages are aimed at those with family members who have cash savings. These funds are then placed in a savings account held by the mortgage lender. Depending on the mortgage deal, the funds will be held for three to five years. As long as the first-time buyer(s) keep up their mortgage payments, the funds will be returned, with added interest.
Any other Options for First Time Buyers?
If none of these options work for you, there are some other products to consider. You can take out a mortgage with a guarantor. In this instance a family member can secure the first-time buyers’ mortgage with savings or their own property. As with all mortgage products, there is a risk if repayments aren’t made, and in this instance the risk is for the guarantor.
If you have a family member with savings, first-time buyers can also take out a mortgage with a gifted deposit. The mortgage lender will need to check that the cash has come from a suitable source; for example, that it comes from a savings account, and has not been raised by a loan.
Tenants in common or joint tenants?
An important point to consider if the individual is considering buying a property with a friend for example, is whether they could be regarded as ‘tenants in common’ or ‘joint tenants’. If there is no documentation to stipulate otherwise, as joint tenants you each hold a 100% share in the property and should, one person of you die, then full ownership would automatically pass to the other.
If a family member has invested money in the property (by gifting the deposit, for instance) or if one person has put more money into the property than the other, you could divide ownership rights accordingly, by drawing up a ‘tenancy in common’ agreement. In this case should one of the individuals die, your share of the property would pass to the person who is named in your will as the recipient.
If you would like to discuss family mortgages or any other financial matter, J Finance, which is also a member of the Equity Release Council, will be happy to help. Please contact us without obligation.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email email@example.com.
EQUITY RELEASE CAN AFFECT THE FUTURE INHERITANCE OF YOUR BENEFICIARIES, NOT TO MENTION YOUR OWN FINANCES. THEREFORE, IT’S IMPORTANT THAT BEST ADVICE IS SOUGHT DUE TO THE COMPLEXITY AND VARIATIONS BETWEEN ALL EQUITY RELEASE SCHEMES.
YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.