How do family deposit mortgages work?
In a family deposit mortgage, a family member deposits a sum of money — typically 10% of the property’s purchase price — into a savings account held by the mortgage lender. This deposit acts as security for the mortgage, allowing the borrower to purchase with little or no deposit of their own.
The family member’s savings are locked away for a fixed period, usually three to five years. During this time, the money earns interest. Provided the borrower keeps up with their mortgage payments, the full savings amount plus interest is returned to the family member at the end of the lock-in period.
Family deposit vs gifted deposit
With a gifted deposit, the family member gives money to the borrower permanently. The money is gone — it becomes part of the borrower’s deposit and the family member has no claim to it. With a family deposit mortgage, the money remains the family member’s property throughout. It’s held by the lender as security, not given to the borrower.
This distinction is important for families who want to help their children buy a home but don’t want to — or can’t afford to — give away a large sum of money permanently. The family member gets their money back, and the borrower gets onto the property ladder.
Popular family deposit products
Several UK lenders offer family deposit or family springboard products. Barclays’ Family Springboard mortgage is one of the best known, requiring a family member to deposit 10% of the purchase price for five years. Other lenders have similar products with varying terms and interest rates on the savings.
The specific products available change regularly as lenders update their ranges. A whole-of-market broker can compare the current options and find the best deal for both the borrower and the family member.
What are the risks?
The main risk for the family member is that if the borrower defaults on the mortgage, the lender can use the deposited savings to cover the shortfall. In the worst case, the family member could lose some or all of their deposited money.
The savings are also locked away for the agreed period, so the family member cannot access them during that time. They should only commit money they can afford to have tied up for several years. Both parties should take independent legal advice before proceeding.
Is a family deposit mortgage right for you?
Family deposit mortgages are ideal for borrowers whose parents want to help them buy but don’t want to give money away, families where the parents need their savings back for retirement or other plans, and first-time buyers who have a steady income but struggle to save a large deposit in an expensive market.
At Clearview Mortgage Solutions, we can explain the options and compare family deposit products across the market. Get in touch for a free consultation.