What is a family deposit mortgage? (+3 tips)
What is a family deposit mortgage?
A family deposit mortgage is a mortgage where family members help you by putting down a mortgage deposit so you can afford to buy a home with your families help.
A family deposit mortgage could also be known as family springboard mortgage.
Whenever a family member gives a mortgage deposit they will usually need to have a gifted deposit letter which is sufficient for the mortgage lender to ascertain that the mortgage lender will not be in any legal dilemma once the family mortgage deposit has been given.
Types of family deposit mortgages
There are several mortgage lenders offering a different variation of a family deposit mortgage, this includes:
the Barclays family springboard mortgage
the Lloyds lend a hand mortgage
A family deposit mortgage from the Loughborough building society
Each one of these mortgages works in its own unique way. We will briefly define how they work and what some of their benefits are.
The Barclays family springboard mortgage is a type of family deposit mortgage where your family members or friends put away 10% of the property price in a Barclays saving account over 3 years for a fixed interest rate. This means you will get a 90% loan to value mortgage.
You get a fixed rate on your mortgage for 3 years and after the 3 years, you move on to the mortgage lenders standard rate.
Your family member will get back their savings plus interest after 3 years if you have made all your mortgage repayments on time.
If you have not made all your mortgage repayments on time or defaulted on your mortgage then the home could be reposessed and your family members may have their funds held for much longer.
The Lloyds lend a hand mortgage is a type of family deposit mortgage which is similar to the barclays family springboard mortgage where a family member puts away 10% of the property price in a Lloyds saving account for 3 years at a fixed interest rate. This means you will get a 90% loan to value mortgage.
The Lloyds lend a hand mortgage will then allow you to get a fixed-rate mortgage fo the first 3 years after which you will move over to the mortgage lenders standard variable rate.
Your family member will then get their savings back after 3 years if you have made all your mortgage repayments on time.
If you have missed your mortgage repayments then the mortgage lender may hold your family members funds for much longer. This could also be the case if you have defaulted on your mortgage and the property has been repossessed.
The post office family link mortgage is a type of family deposit mortgage where your family member uses 10% of a mortgage-free property to fund your mortgage deposit. You and the family member will be on the deed of your new mortgage and the mortgage lender will offer you a mortgage with a loan to value of 90% meaning you don’t need to pay any mortgage deposit towards this specific type of family deposit mortgage.
For the first 5 years of the mortgage, you will make two payments. One towards your family members 10% equity which is an interest-free advance to you. You make the second payment towards your 90% loan to value mortgage..
After the first 5 years, you will revert back to making one mortgage repayment towards your mortgage.
The family deposit mortgage by the Nationwide building society is a type of family deposit mortgage where your family member needs to already have a mortgage with the Nationwide building society. Your family member can then borrow more to fund your mortgage deposit but you will then need to get a mortgage through the nationwide building society.
The family mortgage from the family building society is a type of family deposit mortgage where your family member can use the equity in their home or their savings as security for your mortgage so you can get access to mort affordable first-time buyer mortgage rates.
You will still need to put down a mortgage deposit of at least 5 % and your family members can provide security of up to 25%.
They can do this in one of three ways:
Use the equity tied up in their home with the Security Through Property option provided by the family building society
Deposit money in a savings account that earns interest with a Family Security Account
Deposit money in a Family Offset Account that doesn’t earn interest but reduces the cost for the borrower by reducing the mortgage on what interest is charged
A family deposit mortgage from the Loughborough building society
The family deposit mortgage from the Loughborough building society is a type of family deposit mortgage where equity in your family members property or their savings can be used as a security for your mortgage and in some cases both.
You may be able to assess up to 100% loan to value rates from the Loughborough building society family deposit mortgage.
Will you be able to use the family deposit mortgage if you have bad credit?
You may still be able to use a type of family deposit mortgage even if you have bad credit but this will heavily depend on the mortgage lending criteria of the particular lender. You should speak with a bad credit mortgage broker who can access your mortgage options and let you know if a family deposit mortgage may be viable for you.
If you are bankrupt then you may need to wait for 12 months after you have been discharged from being bankrupt to get a family deposit mortgage but there may be specific specialist mortgages for bankrupts if you need the mortgage sooner.
Bad credit may include:
Will you be able to use the family deposit mortgage if you are self-employed?
Yes, you may be able to use a type of the family deposit mortgage but you will likely need to have all your self-assessment tax accounts and documents in order and have records for at least 2 years to have assessed to a good range of mortgage lenders.
You may need to use the services of a self-employed mortgage broker to help you get a family deposit mortgage.
Alternatives to the family deposit mortgage?
If you are not eligible for any of the family deposit mortgage options available then you may be able to use one of the government home buyer schemes which can either reduce the total price of your home purchase or an equity loan towards your mortgage deposit.
The government schemes you may be able to use include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
To get a family deposit mortgage you should speak to a mortgage broker who may be able to assist you in getting a family deposit mortgage which may be suited to your financial needs.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.