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How the Family Mortgage works
A great option for first time buyers or those wanting to step up the property ladder.
The Family Mortgage is a family help mortgage arrangement that can support buyers with a low deposit to purchase a property using security provided by their family, without the need for a gift or loan.
As long as you have at least a 5% deposit (which can be wholly gifted), and you have family that can give us additional security by using their savings or having a charge on their own property, we may be able to help.
The principle behind the Family Mortgage is simple.
Working with family members helps buyers:
- Get lower interest rates, meaning lower monthly payments;
- Pay interest on a smaller amount of the mortgage, meaning lower monthly payments;
- Increase your buying power when choosing a property to buy.
Working with buyers helps family members to:
- Put assets to work for the buyer as security for the mortgage;
- Help the next generation own their own home without giving the money as a gift.
Watch our short video that explains how the Family Mortgage works:
How can family members help?
Family members can help by providing security in one or a combination of three different ways;
If a buyer can find a 5% deposit, from savings or perhaps a gift, the Family Mortgage allows a family member to provide security for the buyer’s mortgage by depositing savings in a Family Security Account.
This money acts as security for the mortgage and reduces the risk, so we can offer a lower rate of interest than might otherwise be the case. This reduces the monthly payments for the buyer while your savings continue to earn interest.
If the house is sold and the property is in negative equity, there is a risk that the money in the Family Security Account may have to be used to make good any shortfall.
Read our case study which shows how family savings can be used without the money being gifted or loaned.
If a buyer has the 5% deposit, a family member can use the value in their property as security to support the Family Mortgage. You can find out more about security through property here.
By providing this security you lower the interest rate that the buyer might otherwise be able to get and so reduce their monthly payments. Offering security by placing a charge on your property means that if the borrower's house is sold for less than the mortgage value (i.e. there is negative equity), the family member is responsible for making up the shortfall up to the value of the charge.
Our case study shows how you can use the value in a family home as security for your Family Mortgage.
This reduces the amount of the mortgage on which interest is charged. So instead of receiving interest on the savings (which is also subject to tax) the family are passing on a bigger benefit to the buyer by saving them interest on their mortgage.
The additional security family members provide will need to bring the total security we have (your deposit and the help from your family members in one or more of the ways we list above) up to 25% of the property value. Money placed in a Family Offset Account acts as security so if the house is sold for less than the mortgage value, there is a risk that the money may be used to make up the difference.
Read our case study which shows how offsetting family savings can reduce the amount of the mortgage you pay interest on.
You probably have a lot of questions about how the Family Mortgage could work for you - we are here to help!
You can check if a Family Mortgage is right for you and your family but completing our simple Family Mortgage enquiry form.
We have two calculators that show how the Family Mortgage works;
- Our affordability calculator shows how much you could borrow
- Our Family Mortgage repayment calculator shows
what your monthly repayments with the Family Mortgage would be.
Things to consider
There’s a lot to consider when buying a home, especially when using family support. To help guide you through those tricky conversations and decisions, we've produced a series of guides around the ‘Bank of Mum and Dad’.
With our Family Mortgage, it’s important both you and family members understand that by offering security for your mortgage with their savings or by placing a charge on their property, family members are responsible for making up any shortfall if you sell your house for less than the mortgage value, which is known as negative equity.
A mortgage of £159,140.00 payable over 31 years initially on a fixed rate for 5 years at 3.29% and then on our variable Managed Mortgage Rate, currently 4.39%, for the remaining 26 years would require 65 monthly payments of £682.94 and 307 monthly payments of £767.77 plus one initial interest payment of £444.66.
The total amount payable would be £281,515.15 made up of the loan amount plus interest of £121,401.15 and an Application Fee of £175, Product Fee of £599 and a Mortgage Exit Fee of £100.
The overall cost for comparison is 3.9% APRC representative.
What is a representative example?
This is an illustration of a typical mortgage and its total cost.
Download our brochure
Find out more about how the Family Mortgage works and the options available.
The Family Mortgage enquiry form
Complete our simple enquiry form to help us understand your requirements and if the Family Mortgage is right for you.