What is a Family Deposit Mortgage?

A family deposit mortgage (also called a family springboard or family assist mortgage) helps you buy a house with family support. Your family member contributes money to strengthen your application for the lender. 

This makes the loan less risky for the lender, which often translates to lower interest rates for you. 

You might even qualify for mortgages that wouldn’t be an option with a smaller deposit.

How Does a Family Deposit Mortgage Work?

Family deposit mortgages let your family give you a leg up on buying a home. Here’s how each type works:

Linked Savings Account

In a springboard mortgage, a family member deposits money into a savings account held by your lender. This money acts as security for your loan. 

The lender keeps this money for a set period, typically 3 to 5 years, while it earns interest. 

As long as you make your mortgage payments on time, you get the money back at the end of the term. 

This option allows you to qualify for a mortgage with a lower down payment like a 95% LTV mortgage. But your family member’s money will be tied up for a while.

Direct Contribution to Deposit

A gifted deposit mortgage involves a family member giving you money towards your deposit as a gift, not a loan. 

It’s important for them to provide a written statement confirming this, called a gift letter. 

This extra money increases your deposit, potentially leading to a better mortgage deal for you. But, the risk lies with the family member who gives the money, as they won’t get it back.

Security Against Their Property

With a guarantor mortgage, a family member or friend agrees to guarantee your mortgage payments. They often use their property as security. 

This means that if you can’t make your mortgage payments, they are responsible for them and could lose their home. 

While this option can help you get a larger mortgage if you have trouble qualifying on your own, it comes with a significant risk for the guarantor. 

They could lose their property if you default on the loan.

Who Can Benefit from a Family Deposit Mortgage?

Here are the main groups who can benefit from a family deposit mortgage:

  • First-time buyers. Saving a big deposit upfront can be tough. This mortgage helps by lowering the burden. Whether the family secures your loan or gifts money, you get better deals, making buying a home easier.
  • Young professionals. Starting a career and facing high property prices can be a struggle. This mortgage can help you overcome this hurdle. It can either increase the amount you can borrow (guarantor mortgage) or reduce the initial deposit needed (springboard mortgage), making buying a home sooner a possibility.
  • People with low savings. Saving a large deposit is hard, especially with high rent or debt. This mortgage lets your family support your purchase without a big, permanent gift.
  • Self-employed people. Getting a mortgage can be difficult due to fluctuating income. This mortgage, especially with a guarantor, reassures lenders and improves your approval chances.
  • Those using home buying schemes. Government schemes like first homes can help first-time buyers. Combining these with a family deposit mortgage can make even more expensive properties affordable.

How To Qualify for a Family Deposit Mortgage?

Family deposit mortgages don’t have a single qualification process as they rely on different types of family support. 

But, to get approved for any mortgage with a family deposit, you’ll generally need to:

  • Show good financial standing, with a stable income, a good credit history, and manageable debts.
  • Meet the lender’s deposit requirements. Even with family help, you’ll likely need some savings for the deposit. The exact amount depends on the lender and the mortgage type.
  • Your property meets the lender’s criteria and it’s fairly priced.

Note: Even with a family contribution, you might still need some savings of your own for the deposit. The exact amount will vary depending on the lender, the type of family deposit mortgage, and the loan-to-value ratio (LTV) you’re aiming for.

How Much Deposit Do I Need?

The minimum deposit you need for a family deposit mortgage depends on the lender. But, it usually follows the same range as regular mortgages: 5% to 10% of the property’s purchase price.

Then your family contributes an additional 10% to 20% of the property value. This amount is usually held in a locked savings account for a specific period (e.g., 3 to 10 years).

For example, let’s say you’re looking to buy a home priced at £200,000. The lender requires a minimum deposit of 5%. This means you would need to provide £10,000 (5% of £200,000).

If your family can contribute an additional 15% of the property value, that would be £30,000 (£200,000 x 15%). 

This money would likely be placed in a locked savings account as security for the loan.

With your £10,000 and your family’s £30,000, the total deposit would be £40,000 on a £200,000 home. 

This brings your Loan-to-Value (LTV) ratio down to 80% (100% – £40,000 deposit / £200,000 property value) which is significantly lower than the 95% LTV you’d have with just a £10,000 deposit. 

The lower LTV ratio makes you a less risky borrower for lenders. This potentially qualifies you for more competitive interest rates and better mortgage terms.

How Much Can I Borrow?

With a springboard mortgage, you might be able to borrow between 95% to 100% of the property’s value. This depends on how stable your finances are and how much your family can support you. 

If your family backs you with a deposit in a savings account, you could nearly cover the full cost of the home. 

The amount you can borrow also depends on your income and credit history. Usually, lenders offer loans that are 4 to 4.5 times your yearly income. 

If your financial health is especially good, this could increase to 5 or even 6 times your income.

To get a clearer idea of what you might be able to borrow, try using an affordability calculator. 

This tool estimates how much you can borrow based on your earnings and usual lender criteria, helping you plan your finances.

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Who Offers Family Deposit Mortgages?

Many UK lenders offer family deposit mortgages. Here are some options from major banks:

  • Barclays Family Springboard Mortgage. This lets family members deposit 10% of the house price into a savings account for five years, earning interest. No deposit is needed from you, and Barclays offers competitive rates.
  • Halifax Family Boost Mortgage. Similar to Barclays, this requires a 10% deposit from the family into a savings account for three years. It helps first-time buyers purchase without a deposit, with interest earned on the savings.
  • Nationwide Family Deposit Mortgage. This option requires the family member helping to already have a mortgage with Nationwide. They use their home equity as security, so there’s a risk if repayments aren’t made.
  • Lloyds Lend a Hand Mortgage. Here, a family member also deposits 10% of the property value into a savings account for three years. This offers security and benefits for both you and the family member during that time.

This isn’t an exhaustive list. A mortgage broker can search the entire market to find deals suited to your finances, ensuring you get the best terms.

The Pros and Cons of Springboard Mortgages

Springboard mortgages can be a game-changer if you’re struggling to scrape together a deposit. But, like any financial product, they come with their benefits and drawbacks. 

Here’s the lowdown:

Pros
– You can hop onto the property ladder sooner with your family’s cash helping you out.
– You get an opportunity to land cheaper mortgage deals and interest rates.
– Your family’s deposit earns interest, providing them some financial return over time.
– You start building equity in your home sooner, giving you a financial head start.

Cons
– If you can’t make payments, you and your family could lose the house and their money.
– The money your family contributes is tied up and can’t be used for other things.
– Springboard mortgages can be complex, so legal or financial advice might be needed, adding to the cost.
– Financial difficulties can put stress on family relationships.

The Bottom Line: How to Apply for a Family Deposit Mortgage?

Once you’ve confirmed eligibility for a family deposit mortgage, discuss it with your family. Talk about if they’re willing and able to help, and decide together how they’ll support you. This could be a gift, a loan, or a guarantee on your mortgage.

Research mortgage products that suit your finances and the chosen family support method. 

You can also begin collecting standard mortgage documents like proof of income, identification, and proof of address. 

If your family contributes cash, you’ll need a signed statement confirming it’s a gift or loan.

Finally, apply to your chosen lender with all the required documents. If approved, proceed with the property purchase, including valuation, contract exchange, and completion.

A mortgage broker can guide you through this process. They can help you find the right mortgage deal, understand the application process, and ensure all paperwork is in order.

Need a broker? Get in touch. We can connect you with the right person to help you get on the property ladder with a family deposit mortgage.