What is a family assistance mortgage, and how could they work for you?

As a first-time buyer, the process of securing a mortgage is long and unfamiliar. We have heard a lot in recent years about the property market and the difficulty of being able to afford a home.

There are many government schemes to help first-time buyers get on the property ladder. From lifetime ISAs to the first homes scheme, there are ways to help build up a deposit for a first property.

Banks have announced one of the latest alternatives for achieving home ownership. These are known as family assistance mortgages, and in this blog, we will compare them to other options and explain how they work.

‍

So, is a family assistance mortgage right for you?

‍

family assistance mortgages are designed to help first-time buyers purchase a home without the need for a personal deposit.

This works by creating a savings account in which a family member places a percentage of the property purchase price; the lender then holds onto this bank account.

This arrangement allows for the buyer to secure a mortgage for the full property value while a family member's or friend's savings are used as security for the bank.  

‍

How it works:

‍

Helper's contribution

Family or friends (the helper)typically deposit 10% of the property purchase price into a specific savings account with the lender. This account is linked to the buyer's mortgage.

‍

Mortgage terms

The buyer can obtain a mortgage covering up to 100% of the property value, eliminating the need for their deposit. The mortgage often comes with a fixed interest rate for a set period, such as five years.

‍

Helper's funds return

After the fixed period, provided the buyer has kept up with all mortgage repayments, the helper's savings are returned with interest.

Here are some pros and cons, as well as some considerations, before going ahead with a family assistance mortgage.

‍

Benefits

‍

The benefits of using this option for buyers are:

‍

·       Access to homeownership without a personal deposit.

·       Possibility of better mortgage terms due to the helper's contribution.

The benefits of using this method for the helper are:

‍

·       Earning interest on the funds during the fixed term.

·       Helping out a loved one to get on the property ladder without permanently parting with savings or having to be on the mortgage agreement.

‍

Things to consider

‍

There are a few considerations that need to be considered before going ahead with a family assistance mortgage.

There is a risk to the helper's funds. If the buyer misses mortgage payments, the helper's funds can be held onto for longer than the term agreement or used to cover any financial shortfall.

The helper is often asked to seek independent legal advice to ensure they are fully aware of the arrangement and its meaning.

Both buyer and helper will also have to meet specific criteria set by the mortgage lender, including credit checks and income evaluations on both parties involved in the agreement.

‍

All lenders do not offer family assistance mortgages, and they can be far more difficult to secure than a traditional mortgage.

Conclusion

In conclusion, family assistance mortgages provide a valuable opportunity for first-time buyers to purchase a home without needing their down payment, using family support in the form of a family member's savings as security. While they offer benefits such as better mortgage terms and interest earnings for the helper, it's essential to consider the potential risks and requirements involved.

By understanding how they compare to other first-time buyer options, individuals can make an informed decision about whether a family assistance mortgage is the right path to homeownership.

‍

THE “HELPERS” FUNDS ARE AT RISK AND COULD BE RETAINED BYTHE LENDER IF THEY NEED TO REPOSSESS THE PROPERTY

WE RECOMMEND THE HELPER SEEKS INDEPENDENT LEGAL ADVICE BEFOREENTERING INTO THE MORTGAGE WITH THE BORROWER

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UPREPAYMENTS ON YOUR MORTGAGE

For more information on the other ways a third party can help first-time buyers, click here.‍

‍

For more information on the family springboard mortgage, click here. ‍

‍

To find out if a family assistance mortgage is the right choice for you get in touch with us today at: hello@hellomortgage.co.uk