As most first time buyers have only a small deposit to put towards a home, they miss out on most of the better mortgage rates. This innovative mortgage allows family members to combine their finances to reduce repayment costs, without having to hand over their money as a gift.
The society is offering three options under the Family Mortgage to families who wish to help their adult children buy a first home.
The Family Security Account allows a family member to provide security for the buyer’s mortgage by depositing savings in an account which will pay interest. If the buyer can find a 5 per cent deposit, the savings are used as security for the mortgage and so bring down the interest rate that they otherwise might have to pay.
A second option, aimed at families who may be asset rich but do not have spare cash, allows the parents to offer a charge over their property as security to the lender. Again a minimum of 5 per cent deposit is required but the interest rate charged will be lower than normal thus reducing the monthly payments for the buyer.
Finally, family members have the option of depositing savings in a Family Offset Account. While not paying interest to the family member, the buyer only pays interest on the loan minus the savings deposited. The savings are still owned by the family member and they can reclaim it after 10 years. The amount in the offset account also provides security for the mortgage, so reducing the interest rate that might otherwise be available.
All three options can be used in combination. For example both sets of parents of a couple can help by depositing savings in the Family Security Account and the Family Offset Account for up to 10 years thus reducing both the interest rate and the amount on which interest is charged.
Each Family Mortgage will be reviewed after each three or five year fixed rate term, and at 10 years, to take into account the changed circumstances of the buyer and the property’s value which could mean the money being released back to the family members and any charge over a property being removed. The Family Mortgage is available through intermediaries and direct from the society.
The society, subject to certain conditions, will also meet a buyer’s share of the mortgage payments for up to six months if through no fault of their own they become unemployed.
Mark Bogard, Family Building Society Chief Executive, said:
“Young adults even with high paying jobs are struggling to meet the cost of living, so they are either living in rented accommodation longer than ever before or are being forced to live at home. Thus they need help to get on the property ladder.
“Our research shows that children would rather soldier on than take money out of their parents’ retirement pot. Our Family Mortgage gets buyers on the property ladder sooner and keeps family members in control of their money. And because it’s a formal arrangement everybody knows where they stand.”
