For many first-time buyers in the UK, securing a deposit can be a significant hurdle. Rising property prices and the challenge of saving while renting often leave potential homeowners looking for alternatives. A Family Springboard Mortgage or Family Deposit Mortgage can be a solution, allowing family members to assist without giving away money outright. Here’s a detailed look at these mortgage types, how they work, and their benefits.
What Is a Family Springboard Mortgage or Family Deposit Mortgage?
These mortgages are designed to help buyers get on the property ladder with support from family members. Instead of gifting a deposit, family members provide financial backing, usually by placing savings in an account linked to the mortgage.
Key Features
- No Deposit Required
- Buyers can secure a mortgage without a traditional deposit.
- Family members’ savings act as security for the loan.
- Family Contribution
- Relatives provide funds that remain locked in a savings account for a set period.
- This contribution can act as a partial or full deposit equivalent.
- Loan-to-Value (LTV)
- These mortgages typically allow buyers to borrow up to 100% of the property’s value.
How Does a Family Springboard Mortgage Work?
1. Family Member’s Savings
A family member (commonly parents) places a percentage of the property’s value—usually 10%—into a linked savings account.
2. Security for the Loan
The savings act as collateral for the mortgage, reducing the lender’s risk.
3. Interest on Savings
The family member earns interest on the locked savings during the agreement period, often between three and five years.
4. Return of Funds
At the end of the agreed term, if the buyer has met their mortgage obligations, the savings are returned to the family member with interest.
Benefits of Family Springboard Mortgages
For Buyers
- No Need for a Deposit: Buyers can purchase a home without saving a large upfront sum.
- Improved Mortgage Access: Backing from a family member can make it easier to secure a mortgage.
- Step Onto the Property Ladder: Ideal for first-time buyers who might otherwise struggle.
For Family Members
- Financial Support Without Gifting Money: Family members don’t need to give money outright.
- Savings Are Protected: Funds are safeguarded and earn interest while supporting the buyer.
- No Ownership Liability: Unlike guarantor mortgages, family members aren’t directly responsible for repayments.
Eligibility Criteria for Family Springboard Mortgages
For Buyers
- Must meet lender affordability criteria.
- Provide proof of income and a good credit score.
For Family Members
- Must have sufficient savings to contribute (e.g., 10% of the property’s value).
- Agree to lock funds in the lender’s account for the specified term.
Example of How a Family Springboard Mortgage Works
Let’s break down a typical scenario:
- Property Value: £250,000
- Family Contribution: £25,000 (10% of the property value) placed in a linked savings account.
- Mortgage Amount: £250,000 (100% of the property value).
The family member’s contribution reduces the lender’s risk and enables the buyer to access a 100% mortgage. After five years, if the buyer has met all repayments, the £25,000 is returned to the family member with interest.
Differences Between Family Springboard and Family Deposit Mortgages
Family Springboard Mortgage
- Involves locking a set amount of money into a savings account.
- Funds are returned after a fixed period with interest.
- No permanent financial gift is required.
Family Deposit Mortgage
- A broader term encompassing various options, including gifted deposits or savings-based contributions.
- Some options may involve gifting money permanently.
Advantages and Disadvantages
Advantages
- Affordability: Buyers can purchase a home sooner without saving a large deposit.
- Flexibility for Families: Allows family members to help without financial loss.
- Potentially Better Mortgage Terms: Backing from a family member may qualify buyers for favorable interest rates.
Disadvantages
- Savings Are Locked: Family members’ funds are inaccessible during the agreement term.
- Risk for Family Members: If the buyer defaults, the family’s savings may be at risk.
- Limited Lender Options: Not all lenders offer these types of mortgages.
How to Apply for a Family Springboard or Deposit Mortgage
- Research Lenders
- Identify lenders offering family-assisted mortgage options, such as Barclays’ Springboard Mortgage.
- Understand Requirements
- Confirm eligibility criteria for both the buyer and the supporting family member.
- Seek Professional Advice
- Consult a mortgage broker to compare deals and find the best terms.
- Provide Documentation
- Submit proof of income, credit history, and details of the family member’s savings.
- Complete the Application Process
- Work with the lender to finalize the mortgage agreement.
Are Family Springboard Mortgages Right for You?
Ideal for Buyers Who:
- Are first-time buyers struggling to save a deposit.
- Have family members willing and able to provide financial support.
Ideal for Families Who:
- Want to help without permanently gifting money.
- Can lock away funds for a few years without financial strain.
FAQs about Family Springboard Mortgages
1. Can multiple family members contribute?
Yes, some lenders allow contributions from multiple family members, such as both parents or grandparents.
2. What happens if the buyer defaults?
If the buyer fails to meet their mortgage obligations, the family member’s savings may be used to cover the shortfall.
3. Are interest rates higher for these mortgages?
Not necessarily. The family contribution can reduce the risk to the lender, sometimes leading to competitive interest rates.
Conclusion
A Family Springboard Mortgage or Family Deposit Mortgage is an innovative way to make homeownership accessible to more people in the UK. By leveraging family savings, buyers can secure a mortgage without a deposit, while families can provide support without permanent financial loss.
If you’re considering this option, consult us to explore available deals and ensure the arrangement suits both the buyer and supporting family members. With proper planning, a family-assisted mortgage can be a stepping stone to owning your dream home.
