The term “Bank of Mum and Dad” has been used in the media for a long time now to describe the fact that most young people need some help from family to get onto the housing ladder. Typically this sort of family assisted mortgage is in the form of cash towards a deposit, however some lenders have created more innovative family assisted mortgages to help people get on the ladder. Here we will explore how those family assisted mortgages work, who provides them and their relative pros and cons.
The most common ways for parents to help children obtain mortgages are either savings based schemes, or security based schemes.
The former involves the helper lodging funds with the lender in their own name, these funds are locked in for a period of time, usually gaining interest, and if there are arrears used to settle these.
The latter involves the helper putting a charge against their existing property in lieu of a deposit.
Savings based Family Assisted Mortgage
In the case of Barclays, the helper can place 10% in a special account that pays interest and the applicants can take either a 95% or a 100% mortgage. The scheme is measured over 5 years and assuming there are no arrears, the helper then gets their funds back with interest and the applicant is free to remortgage or continue with Barclays.
The Family Building society requires a 20% deposit, and the applicant needs to provide 5% themselves however the product comes with incentives like free income insurance as well.
There are risks of course. If the applicant defaults on the mortgage the arrears wil be taken from the deposit and perhaps most importantly the applicant might not have built enough equity up in the property to remortgage to another lender, or to allow them to move house in the future. Much like the Help to Buy scheme this is pushing a problem further down the road and the long term effects need to be considered.
Security based Family Assisted Mortgage
Mansfield Building Society for example offer a Family Assisted scheme that allows helpers to secure 20% of the new purchase against their own homes, this is held in place for a term of 7 years and this allows the applicant to take a 100% mortgage. The advantage of this is that neither helper nor applicant need to have significant amounts of cash.
The fact they own a property is enough, however helpers should be aware that ultimately their property could be at risk if the applicants fail to make their payments. Independant legal advice need to be taken to full understand the consequences of this.
Income based Family Assisted Mortgage
Deposit isn’t the only issue facing new buyers. Sometimes the size of the loan is the primary factor and if thats the case guarantoor mortgages are still available in some cases, although they are rarely known under this name anymore. Essentially a family member joins the applicant in the application process without needing to be a resident at the property.
Often known in the industry as “joint borrower, sole proporietor” mortgages, they allow a much larger loan amount by taking into account the income of people who will not be resident. Those additional people dont need to provide cash, or security of their home, but they are signing a mortgage contract and will be putting their credit on the line if one of the others doesent pay the mortgage.
Frequently Asked Questions
If their security, ie their home is being used, and you fail to pay the mortgage then both hgomes could be reposessed. If its cash savings that are being used then any arrears will be taken from that lump sum. If a parent is jointly on the mortgage then their credit score can be impacted if you default, meaning they might struggle to get credit, or will pay more for credit in the future. These are all considerations that should be discussed.
What type of schemes do lenders offer? Click below for a summary.
Click here to view lender matrix
|Lender||Family Support Type||Notes||External Link|
|Beverley Building Society||Income||Up to 95% LTV available||More info|
|Buckinghamshire Building Society||Income & Security||Family can use up to 60% of their equity to help||More info|
|Market Harbrough Building Society||Income||Family can be on the application but not on the title deeds.||More info|
|Loughbrough Building Society||Security & Savings||Cash and/or Equity equaling 20% of the purchase||More info|
|Marsden Building Society||Income, Security and Savings||Cash and/or Equity equaling 20% of the purchase, as well as joint borrower support||More info|
|Melton Building Society||Income||Parents can use income to assist a mortgage||More info|
|Vida Homeloans||Income||Parents can use income to assist a mortgage||More info|
|Family Building society||Security & Savings||Allows for a 95% ltv mortgage||More info|
|Barclays||Savings||100% mortgage options available||More info|
|Mansfield Building Society||Savings & Security||100% mortgage options available||More info|
|Metro Bank||Income||Parents can use income to assist a mortgage||More info|
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