Building your Tembo Plan
Family springboard mortgages explained
We all need a little help from family and friends from time to time and that’s never been truer for first-time buyers than now.
Every few months house prices seem to reach another record high - but there is help. Realising that homeownership is unaffordable for many, despite the re-introduction of 95% mortgages, some lenders offer home loans that allow family and friends to help you on the property ladder.
A family springboard mortgage allows first-time buyers to purchase a home without any deposit. Depending on the lender you choose, your family member or friend either has to offer their savings or a chunk of their property equity as security for your mortgage.
By doing so, your lender knows that if you’re unable to pay your mortgage there is a safety net in place to help you.
The Barclays family springboard mortgage is actually the only family mortgage officially called springboard. Let’s look at that one first.
Family or friends, known as ‘helpers’, must deposit 10% of the property purchase price into a savings account called Helpful Start for five years. First-time buyers must choose a five-year fixed rate mortgage which means both you and your helper are tied to the springboard mortgage for five years. During this time, your loved ones earn interest on their savings, but they cannot deposit or withdraw money from the account until it is released. Barclays’ savings rate is variable, currently 1.61%.
Similar springboard mortgages are offered by the likes of Halifax/Family Boost and Lloyds/Lend a Hand. The main difference is that helpers’ savings must be deposited for three years instead of five and the savings rates are a little higher.
Nationwide’s version of the springboard is called the Family Deposit Mortgage, and it works a bit differently.
To start with, the person helping you must already have a Nationwide mortgage and be able to borrow more against their home. They must also be a family member, no friends allowed.
Nationwide agrees to lend your helper more money which is donated to you as a gifted deposit. Your helper must have 15% equity remaining in their home after Nationwide has agreed their further advance. Armed with your gifted deposit, you choose a mortgage from Nationwide’s standard range. It’s up to you and your family to decide if the gifted deposit is an outright gift or will repaid at a later stage.
With any family springboard mortgage, family and friends must seek independent legal advice before the mortgage completes.
The benefits of a family springboard mortgage are clear. First-time buyers can get on the property ladder without waiting years to save for a deposit. And where the lender offers a savings account tied to the mortgage, family members are often offered a higher rate of interest than available on the open market.
But there are some serious risks to consider too.
- Your family or friends are putting their savings or their property at risk when they help you.
- If you do not keep up to date with your monthly mortgage payments your helper will not get their savings back until you have caught up. Banks can also use some of your loved one’s savings to pay your arrears. If they have offered a chunk of their property equity as security, their property could be at risk of repossession if you fail to repay your mortgage.
- As the homeowner, you’re at risk too. By not putting down a deposit you could fall into negative equity if house prices go down. Negative equity means your home is worth less than the value of your mortgage.
Family springboard mortgage deals also come with several drawbacks and restrictions. Because you’re not putting down a deposit, you’re a higher risk to the bank. You’ll be charged a higher rate of interest than a first-time buyer who has a 5% deposit. Halifax and Lloyds Bank charge 3.92% and 4.12% respectively for their family mortgage deals. The average two-year fixed-rate mortgage at 95%, on the other hand, is 3.21% according to the Bank of England.
You’ll find lots of restrictions on the type of property you can buy with a family mortgage. New-builds, shared-ownership, and self-build homes are not usually allowed. Maximum mortgages are sometimes capped at £500,000 and you’re restricted to choosing from just a few long-term fixed-rate deals.
If you only have a small deposit, or no deposit at all, there are alternatives to family springboard mortgages.
Most mortgage lenders will offer you a mortgage even if 100% of your deposit has been gifted to you. They will investigate the circumstances of the gift to check for money laundering flags and to make sure you haven’t borrowed the money from another lender. If the person making the gift wants their money back in the future, they can ask a solicitor to place a legal restriction on your home so that when you sell it they can get their money back.
A common Google search is “best family help to buy mortgage deals similar to springboard”.
The government’s Help to Buy scheme is indeed a good alternative. With a 5% deposit, you can take out a government loan worth up to 20% of your purchase price. You don’t pay any interest on the loan for the first five years. When you sell your property you repay 20% of the sale price back to the government.
Or you could choose to take out a 95% mortgage with a lender if you have a 5% deposit already saved up. If don’t have a deposit or a helper to put forward savings you can speak to a Tembo mortgage expert to find out more about our Deposit Boost.
Finally, you could consider a guarantor mortgage. Instead of putting up their savings as a guarantee, like a family mortgage, your guarantor agrees to step in and pay the mortgage if you’re not able to.
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