Having to find enough to cover all your monthly bills, together with regularly putting aside a chunk of your income towards purchasing your own home can create a significant amount of financial pressure over a long period of time.
With the average first time buyer spending £208,719 on their property, according to latest data from Mortgage Advice Bureau, some are lucky enough to receive a gifted deposit from family members.
Not everyone has a ‘Bank of Mum and Dad’ who are able to give them the tens of thousands they need to get on the ladder.
The good news though, is that recently mortgage lenders have become more and more aware of the need to provide a solution to this growing issue.
As a result, they have launched products which are specifically designed to assist first time buyers who have family members who want to help them buy their own property, yet can’t actually give them the deposit.
What mortgage options do I have if I can’t afford the deposit?
The Post Office has released a Family Link Mortgage, which effectively enables first time buyers to purchase with no cash deposit at all.
How does that work?
Well, the first time buyer takes out a mortgage for 90% of the value of the home they wish to purchase. The Post Office then lends the remaining 10% deposit as a mortgage secured against the home of an ‘assistor’, for example perhaps your parent’s property.
Both the first time buyer and the assistor are named on the mortgage of the first time buyer’s property but the first time buyer isn’t added to the deeds of the assistor's property.
For five years, the first time buyer makes two separate payments every month.
The first one is their monthly mortgage payment on their property, which is subject to interest as per a normal mortgage, and the second is a repayment on the mortgage on their assistor’s property, which is interest free.
After the first five years, for the remainder of the mortgage, you just pay your normal monthly mortgage payment.
So, for example, if the property you want to buy is worth £200,000, you would raise a mortgage of £20,000 against your assistor's property, which would then become your 10% deposit.
You would then raise a mortgage of £180,000 which you would use to purchase your home. You then pay back £20,000 interest free over 5 years, as well as your monthly mortgage payment. After the £20,000 is repaid, you only make your monthly mortgage payment each month.
The Post Office Family Link Mortgage provides an ideal way for parents to help their children get on the property ladder, without having to use their own savings or gift any cash.
However, one stipulation of the product is that the assistor’s home must be mortgage free in order to raise the deposit amount.
What other options do I have?
Another product that enables loved ones to help first time buyers to purchase their own home without the need to give them the deposit is the Barclays Family Springboard Mortgage.
This is slightly different to the Post Office deal.
Instead of allowing you to use a family member’s home to raise a second mortgage in order to form a deposit; this product enables parents or another family member to use their savings to act as the deposit, which they get back after a certain period of time.
With the Barclay’s Family Link Mortgage, the person who is helping the first time buyer provides security for their mortgage by opening a savings account with Barclays with 10% of the purchase price of the property they are buying.
But instead of having to gift them this deposit, they are instead lodging their savings in a linked account.
Providing that the first-time buyer makes all of their monthly mortgage payments on time over a three-year period, the person assisting the first time buyer will receive all of the savings they lodged in the account back, with interest, at the end of the three years.
This product may be an option for families where perhaps parents have saved a nest-egg for their retirement which they can’t afford to give to their children to help them get on the ladder. But they are happy to let them utilise the funds for a period of time.
Barclay’s aren’t the only bank to offer a product where a parent or family member’s savings can be lodged in a saving’s account to form a deposit for a first time buyer.
The Family Building Society, Loughborough Building Society and Buckinghamshire Building society also offer similar ‘family assistance’ mortgage products. However, the interest rates, fees and terms of the deals available vary between lenders.
Of course, these new breeds of mortgages won’t suit everyone, so it pays to sit down with a mortgage broker to discuss your individual circumstances to see what solutions are available and what you may be eligible to apply for.
But if you have family members who want to help you to get on the ladder, they potentially can provide a workable solution.
