Everything you need to know about springboard mortgages
According to the Office for National Statistics, the average UK house price is sitting at around a quarter of a million pounds. Trying to pull your savings together for a deposit and get approved for a mortgage might seem like a challenge, but there are many different mortgage products around that might be right for your circumstances, such as a 'springboard mortgage' (sometimes called a 'family springboard mortgage').
With a family mortgage, your family or friends can step in to assist, using their savings to help you with your mortgage. This is called a family springboard mortgage. You might also hear the term family mortgage, family deposit mortgage or even family boost mortgage. They're all a very similar product, but lenders will each call their own product something different.
Here, we'll find out exactly what a springboard mortgage is, and how your family and friends could help you buy a home without gifting you their savings.
What does a springboard mortgage mean?
The phrase 'bank of mum and dad' isn't new to anyone who's worked in the property industry for any length of time.
It's a common story for family or friends of family to want to help the next generation with a loan to get their foot on the property ladder (although this mortgage is suitable for both first time buyers and home movers). Nowadays, the old phrase has been replaced with a new type of mortgage; the 'springboard mortgage', also known as a 'family mortgage'.
As you can imagine, it does what it says on the tin. This mortgage product is a chance for family members or friends to provide a springboard for their loved one right on to the property ladder, providing them with the security that comes with owning property.
It's important to recognise that a springboard mortgage is different to a deposit gift. If a deposit is gifted by family members or friends, it doesn't need to be paid back. The springboard contribution from family members goes into a savings account and must be paid back over the agreed term.
It's important for the person who'll be providing the springboard contribution to seek independent legal advice before going ahead with the family boost mortgage.
Mortgage arrangement made up of borrowers and helpers
Commonly known amongst lenders as a 'family springboard mortgage', this arrangement is made up of the 'borrower' and the 'helper'. You might see other names around such as 'assister' but by and large, they all play the same role in the process.
The borrower is the person who takes out the family springboard mortgage while the helper puts their funds in a savings account that is linked to the mortgage. With Barclays for example, this is called a 'Helpful Start Account'. The family or friend 'helper' can add 10% of the purchase price to the helpful start savings account where their investment can build interest.
This chunk can allow the borrower to get on the property ladder with as little as 0% as the helper has provided security against the loan.
On the basis that family springboard mortgage repayments are made on time, the helper can get their money returned with interest after a fixed period of time. (Always remember, if you're unable to keep up with the mortgage payments, there's a chance your home may be repossessed.)
Some schemes may rely on equity from the helper's property to act as the security on the loan but this is different from lender to lender.
Who is offering springboard mortgages?
Halifax Family Boost Mortgage
It's important to note that this is currently unavailable to new applicants. However, they should be back on the market soon. The main benefit of this product is that the funds will be held in a savings account for 3 years instead of 5 years. Handy if your helper needs their funds back sooner rather than later. However, be mindful that your mortgage payments may be higher in the initial three year period.
Nationwide Family Deposit Mortgage
To be eligible for this scheme, the helper must have an existing mortgage with Nationwide and they must be a family member. In contrast to most other family mortgages, the helper won't put any funds into a savings account. The equity in the helper's current property would be used as security against the loan instead.
As you can imagine, this is quite a risky one if there's any possibility repayments won't be met. It could lead to disastrous consequences such as your helper losing their home.
Post Office Family Link Mortgage
Be mindful that you'll need an income of at least £20,000 to be eligible for a Post Office mortgage.
With the Post Office, borrowers could borrow up to 90% of the property price. The final 10% will come from the equity in the helper's home (similarly to Nationwide).
The initial 10% must be paid back over the first 5 years of the mortgage. The 90% is repaid over the rest of the mortgage term.
Lloyds Bank Lend A Hand Mortgage
Similarly to Halifax, helpers will put 10% of the value of the property into a savings account for three years. The helper will get their money back with interest after three years.
It's optional for the borrower to put down a 5% deposit. If you'd prefer a 0% deposit arrangement, this is available too. Once you've begun your repayments, your interest rate will be fixed for three years.
Barclays Springboard Mortgage
The most well known contender for this product is easily Barclays. Their 0% and 95% offers are a popular choice for anyone exploring a family mortgage.
Every lender will have their own terms and mortgage rates. The amount you could borrow may vary depending on the particular lender. Always make sure you do your research and make sure the products are authorised and regulated.
Is a family deposit mortgage right for me?
We would always recommend seeking the help of a mortgage advisor if you're unsure about which mortgage product is right for you.
There are a range of people who a springboard mortgage might be suitable for. Here are just a few examples.
- You're someone who has a smaller deposit with family or friends who are able to support you.
- You're a parent or a friend with savings you'd like to contribute to a loved one purchasing a property. Many find that they feel more comfortable knowing the deposit is held in their name.
- You're looking for a flexible way to purchase your home.
What are the benefits of a family springboard mortgage?
Obviously your personal circumstances need to be considered when looking at any kind of mortgage product. These will inevitably affect your mortgage application and how much you're able to borrow in the future. For example, consider your credit score, income and savings. If any of these things are unstable, this could affect your mortgage application.
However, if you decide a family springboard mortgage is right for you, both the borrower and the helper might actually stand to gain from this family mortgage approach.
Benefits for the borrower
Available to both first time buyers and home movers
For first time buyers, having the help from a family member might give them the chance to own property when they might not have been able to previously. Making the transition between renting, saving and finally making mortgage payments can be difficult financially. With 0% and 5% deposit options, it makes the saving a lot more manageable for the average first time buyer.
You never know how life is going to change. For a lot of people, a big benefit of family springboard mortgages is that they're not exclusive to first time buyers only. You might have already made your way on to the property ladder but circumstances have changed. You might have started a family for example, and may need to find a larger property. With the help of your family members, you may well be able to up the budget for your next property by a significant amount.
A fixed term
Naturally, these will vary from lender to lender, but most family mortgages are on a three or five year fixed term, giving the borrower some security during the first few years in the property.
After this, the borrower will have the opportunity to switch their rate if it's appropriate. The remaining loan amount will be paid over the course of the rest of the mortgage term.
Property security
With family mortgages, the borrower retains the full rights to 100% of the property. The helper (or helpers) are not guarantors, which subsequently also protects them from the new Stamp Duty rules. Everybody wins.
Benefits for the helper
Their deposit contribution earns interest
Family deposit mortgages are a great opportunity for parents to help out their loved ones in a difficult modern property market. But they get to benefit too.
When the helper deposits their money with the lender, this amount is able to earn interest. Often, the interest rates from lenders are higher than the England base rate. Barclays for example, offer an interest rate of over 1.5% of the Bank of England base.
They'll get their money back
Subject to monthly payments being up to date, the helper will receive their deposit contribution back (with interest) after a fixed term.
This will vary between 3 years and 5 years depending on the lender.
The ability to recycle their contribution for another family member
Owing to the fact that helpers will get their money back (subject to monthly payments being made), they could in theory recycle their funds for several friends or family members on their way to a mortgage if they choose.
What are the different types of springboard mortgage?
95% Loan to Value (LTV) springboard mortgages
Let's say the 'borrower' wants to buy a property with a purchase price of £200,000. They've pulled together their savings and have produced a 5% deposit of £10,000. At this point (depending on the lender) they'll be able to borrow £190,000 (95%). Their 'helpers' put in 10% of the property price (£20,000) as security against the loan. This money will earn interest while in the account.
After the fixed term agreed with the lender and subject to timely repayments, the bank will release these funds back to the helper. If they choose, they can then start the process again with another family member (if there's siblings for example).
0% family deposit mortgage
The major difference here is that the borrower produces a 0% deposit. Be mindful that not all mortgage lenders will approve these kinds of applications. Income and credit could both be factors in whether you're accepted.
In these instances, the family member (helper) would just provide their security contribution. As we mentioned earlier, bear in mind that this may mean your repayments are higher in the initial three to five years of your mortgage. You'll want to ensure you can afford the rate of the repayments before committing.
Springboard Mortgage FAQs
Which properties are suitable for family springboard mortgages?
You can use a family boost mortgage on properties up to the value of £500,000. Great for any first time buyer or home mover.
At the moment, these mortgages can't be used on new build properties as lenders fear the possibility of negative equity.
The springboard mortgage scheme is designed to help people on to the residential property ladder. With that in mind, these mortgages aren't suitable for buy to let as they're not designed for investment properties. Typically, lenders will want a higher deposit amount or for you to already own another property outright.
How much can I borrow on a springboard mortgage?
How much you can borrow will usually depend on your income. Take Barclays for example. You could borrow up 5.5 times what you earn if you make more than £50,000, regardless of whether it's a single or combined income (subject to your credit and other eligibility checks).
If you make £50,000 or less, you could look to borrow up to 4 times what you earn.
Here's an example. If you make £40,000 a year, you may be able to borrow up to £160,000 (40,000 x 4).
How long is the typical mortgage term?
Again, this will vary between lenders. They can range anywhere from five years, to 25 years or even 35 years depending on the scheme.
Can my helper take the money out of the account if there's an emergency?
No. The money from the helper will be unavailable and will only be released by the lender from the linked savings account at the end of the fixed term. It may even end up being later if your mortgage payments are overdue.
How will my income affect my eligibility for a springboard mortgage?
In most instances, the same eligibility criteria and credit checks will apply for a springboard mortgage with any lenders as it would for any other product.
Whether you're employed, self-employed or anything in between, if you need advice, you should speak directly to a mortgage advisor. Make sure the person you choose to get advice from is registered in England, as they'll be authorised and regulated by the Financial Conduct Authority (FCA) - you can check this on the Financial Services Register.
Mortgages are tough. Especially when you're a first time buyer. Both borrowers and helpers can reap the rewards from family deposit mortgages. Not only does the borrower land the security of their own property, the helper can use their savings to watch their family member create a new life for themselves.
Whether you're the family member or you're helping your family member on their way to home ownership, always seek advice from a mortgage advisor if you're unsure about which mortgages from which lenders might be right for you. You should always take into account your personal circumstances and have the long term future in mind. Remember, a house is for life, not just for Christmas!
