Family Assisted Mortgage: Your Complete Guide to Helping Loved Ones Buy a Home
Owning a home is a dream for many, but with rising property prices and stringent mortgage requirements, it can be difficult for first-time buyers to make this dream a reality. This is where a family assisted mortgage can make all the difference. In this comprehensive guide, we will explore the concept of family assisted mortgages, their benefits, and how they can help your loved ones achieve homeownership.
What is a Family Assisted Mortgage?
A family assisted mortgage, also known as a family deposit mortgage or family springboard mortgage, is a type of mortgage product that allows family members to provide financial assistance to their loved ones for purchasing a property. This assistance typically comes in the form of a cash deposit, which is either held in a savings account or used as collateral against the mortgage.
Key Benefits of Family Assisted Mortgages
There are several benefits to using a family assisted mortgage, including:
- Lower deposit requirements: With family assistance, first-time buyers can often secure a mortgage with a lower deposit than would be required otherwise. This makes it easier for them to enter the housing market.
- More favorable mortgage terms: The additional security provided by the family’s deposit can result in more attractive mortgage terms, such as lower interest rates or reduced fees.
- Helping loved ones without depleting savings: Family members can provide financial assistance without having to give away a large sum of money permanently, as the deposit is often held in a savings account and returned after a specified period.
How Does a Family Assisted Mortgage Work?
There are several ways a family assisted mortgage can be structured, depending on the specific mortgage product and the needs of the borrowers. Here are some common options:
In a savings-backed mortgage, family members contribute a cash deposit, typically ranging from 10% to 20% of the property’s value, which is held in a designated savings account for a specified period (usually 3-5 years). The first-time buyer can then secure a mortgage with a lower deposit, and the family’s savings are returned (plus interest) at the end of the term, provided the mortgage payments have been made on time.
In a guarantor mortgage, family members offer their property or savings as collateral against the mortgage. This means that if the first-time buyer defaults on their mortgage payments, the family member’s property or savings could be at risk. However, this option can help borrowers secure a mortgage even if they have a small deposit or a less-than-perfect credit history.
Eligibility Criteria for Family Assisted Mortgages
Both the first-time buyer and the family member providing assistance must meet certain criteria to qualify for a family assisted mortgage. These requirements may vary between lenders, but generally include:
- The first-time buyer must be over 18 years old and have a stable income.
- The family member providing assistance must be a close relative (parent, grandparent, or sibling) and have sufficient equity in their property or savings to cover the required deposit.
- Both parties must pass the lender’s credit checks and affordability assessments.
Choosing the Right Family Assisted Mortgage
With several types of family assisted mortgages available, it’s essential to choose the right one for your specific situation. Consider the following factors when making your decision:
- Flexibility: Ensure the mortgage product offers the flexibility you need, such as the ability to make overpayments or the option to release the family’s deposit early.
- Interest rates: Compare interest rates and fees among different lenders to find the most cost-effective option.
- Terms and conditions: Carefully review the terms and conditions of the mortgage to ensure you understand