How do family deposit mortgages work?
With a family deposit mortgage, a relative pays a sum, usually 10% of the purchase price, into a savings account held by your mortgage lender. That money sits there as security for the loan, which lets you buy with little or even no deposit of your own.
Their savings are tied up for a fixed spell, normally three to five years, and earn interest while they wait. As long as you keep up with your mortgage payments, the whole amount plus that interest goes back to them when the lock-in period ends.
Family deposit vs gifted deposit
With a gifted deposit, a relative gives you the money for keeps. It becomes part of your deposit and they have no claim on it afterwards. A family deposit mortgage works differently. The money stays theirs the whole way through. The lender only holds it as security. It is never handed to you.
That difference matters for families who want to help a child buy but cannot afford to part with a large sum for good, or would simply rather not. The relative gets their money back at the end, and you get onto the property ladder.
Popular family deposit products
Several UK lenders run family deposit or family springboard products. Barclays’ Family Springboard mortgage is among the best known, asking a relative to lodge 10% of the purchase price for five years. Other lenders offer similar deals, with their own terms and their own interest rates on the savings.
The exact products on offer shift often as lenders refresh their ranges. A whole-of-market broker, one that can look across the lenders rather than a single provider, will compare what is currently available and find the best fit for both you and your relative.
What are the risks?
The main risk falls on the relative. If you default on the mortgage, the lender can dip into their deposited savings to cover the shortfall. At worst, they could lose part or all of the money they put in.
The savings are also locked away for the agreed term, so your relative cannot touch them in the meantime. They should only put in money they can happily do without for a few years. Both of you should take independent legal advice before going ahead.
Is a family deposit mortgage right for you?
A family deposit mortgage tends to suit a few situations. Perhaps your parents want to help but would rather not give money away. Perhaps they need their savings back later for retirement. And it often works for first-time buyers who earn a steady income yet find it hard to save a big deposit in a pricey market.
At Clearview Mortgage Solutions we can talk through the options and compare family deposit products across the market. Get in touch for a free consultation.