KEEP IT IN THE FAMILY. . . AND YOU CAN BUY THAT FIRST HOME
Families are being offered new ways to help hopeful first-time buyers get on the housing ladder – without parents having to hand over large sums of money forever via the ‘Bank of Mum and Dad’.
A small band of innovative lenders have created schemes that allow parents, grandparents or other relatives to pool their resources with the younger generation.
As long as the youngsters pay their mortgage bill each month, the helpers retain access to their savings and can withdraw their cash, often plus interest, as soon as the initial mortgage deals end.
‘Young people still face a huge challenge getting the mortgage they need,’ says Sarah Pennells, financial expert and founder of the SavvyWoman website.
‘So any flexibility or innovation from lenders is welcome.’
Here are three key ways lenders are allowing family and friends to help first-time buyers:
The savings route
With the Barclays Family Springboard mortgage, first-time buyers or home movers can get loans with deposits of as little as 5 per cent of their purchase price.
But they pay a lower interest rate than on normal, low deposit deals because parents or other family members put 10 per cent of the price in a linked savings account for three years.
If the borrower pays the mortgage on time in this period, the helper can withdraw the cash at the end of the deal – having earned a generous interest rate of Bank of England base rate plus 1.5 per cent.
If the borrower misses repayments Barclays can keep the savings account in place for more than three years and it can retain the money for good if the property is repossessed and sold at a loss during the arrangement. Use the deal and buyers can get fee-free three- year fixed rates from 2.89 per cent.
The Family Building Society provides a similar scheme, with three-year fixes at 3.34 per cent, where buyers put down as little as a 5 per cent deposit and family members pay up to 20 per cent of the purchase price into a linked ‘security account’.
The offset strategy
Yorkshire and Chelsea building societies help younger buyers cut their monthly repayments by allowing family members to put money in up to three linked offset accounts.
The money in the accounts will not earn interest, but is deducted from the borrower’s mortgage balance each month before working out how much their repayment will be.
So if you have a mortgage of £90,000 and one relative put £10,000 in an offset account and another puts in £5,000, you only pay interest on £75,000. The people putting the money in can withdraw it at any time – but the youngster’s monthly bills will rise if they do so.
The mortgage interest rates for people taking advantage of this scheme are around 0.2 percentage points higher than on Yorkshire’s standard loan deals.
At the moment it has two-year offset fixes from 3.88 per cent. The Family Building Society offers similar offset deals – and first-time buyers can get a double benefit by using an offset arrangement alongside its security account.
The guarantor schemes
Guarantor loan schemes have gone out of fashion in recent years, but a handful of lenders do still offer them.
They work by getting family members to use the equity in their own homes, and their incomes, to guarantee that the new borrower will meet their repayments.
The theory is that if an established owner and borrower guarantees your loan you are more likely to have your application accepted and will qualify for a lower interest rate.
Such an arrangement is offered by less well-known lenders such as Aldermore Bank, which will lend up to the full purchase price of a property with the right guarantee arrangements in place.
The loans do not come cheap, though: it has two-year fixed rate loans at 5.48 per cent with set-up fees of more than £1,000.
30th November 2018Back to news