Finding it tough to save up for a home deposit in the UK? You’re far from alone, and there’s a practical option that could help you move forward: a springboard mortgage.
For many people in the UK, the idea of buying a home feels increasingly out of reach, mainly due to the challenge of saving for a deposit. The latest figures from the Office for National Statistics (ONS) reveal that the average house price in England is £269,000. If you consider that most mortgage lenders ask for at least a 10% deposit, you’d need to come up with £26,900 just to get started. And if you don’t have a deposit or can only manage a 5% deposit, your choices are quite limited.
But there’s good news. If you have family members who are in a position to help, a springboard mortgage could be a sensible way to buy your own home. This type of mortgage allows your family to help you without losing their savings for good. Keep reading to find out how a springboard mortgage could help you take a realistic step towards owning your own home.
What is a springboard mortgage?
A springboard mortgage is a specific type of mortgage designed to help first-time buyers or those who find it difficult to save for a large deposit. In this arrangement, family members can assist the homebuyer by placing a sum of money into a savings account linked to the mortgage. This sum acts as security for the mortgage, allowing the buyer to qualify for a more favourable loan-to-value ratio, often without needing a large deposit themselves.
The family’s savings are usually held in the account for a fixed period, commonly around 3 to 5 years. During this time, the money earns interest and is returned to the family members at the end of the term, provided that the mortgage payments have been made on time. This makes it a less permanent financial commitment for the family compared to gifting a deposit while still enabling their loved ones to purchase a home.
In essence, a springboard mortgage offers a practical solution for those who have a stable income to afford mortgage repayments but struggle with saving for a large upfront deposit. It also provides a way for family members to help in a manner that is less financially risky for them in the long term.
First-time homebuyers in the UK are facing significant challenges, according to a BBC report. The report cites four key reasons:
- Stricter lending criteria: Lenders are now requiring larger deposits, making it more difficult for first-time buyers to save enough money to purchase a home. At a savings rate of 5% of income, it could take a first-time buyer up to 30 years to save enough for a deposit.
- Lack of savings: An estimated half of all 25-34-year-olds who are currently renting do not have any savings. This means that they are unable to save for a deposit, let alone afford the other costs associated with buying a home, such as legal fees and stamp dutyA tax paid by the buyer when purchasing a property..
- Limited impact of stamp duty holiday: The stamp duty holiday, which was in place until the end of March 2021, only applied to properties valued over £500,000. This means that the majority of first-time buyers did not benefit from the holiday.
- Job insecurity: The COVID-19 pandemic has led to job insecurity and uncertainty for many people. This may make it difficult for first-time buyers to obtain a mortgage, as lenders will be reluctant to lend money to borrowers who are at risk of losing their jobs.
The BBC report also notes that the “bank of Mum and Dad” is playing an increasingly important role in helping first-time buyers onto the property ladder. An estimated £5 billion was gifted to first-time buyers from their parents in 2019.
The Financial Times has also reported on the challenges facing first-time buyers. In a story published on July 1, 2020, the newspaper predicted that the “Bank of Mum and Dad” would continue to play a key role in supporting first-time buyers for the foreseeable future.
The challenges facing first-time buyers in the UK are significant. The government has taken some steps to address these challenges, such as introducing the Help to Buy scheme, but more needs to be done to make it easier for first-time buyers to get onto the property ladder.
If you are interested in getting the latest information regarding such mortgages, we would suggest you to contact an expert broker and start your journey to the property ladder today.
What do the mortgage lenders take on these mortgages?
Barclays Bank – and a few other mortgage lenders – have looked to formalise such sources of help provided by parents and other family members to first-time buyers.
It is Barclays who have coined the term springboard mortgage – other lenders have launched similar schemes under such names as a family boost mortgage, family deposit mortgage, or simply family mortgage.
What they have in common is the principle of the savings offered by parents or other family members to be used as additional security on the first-time buyer’s purchase of a home.
Savings typically equivalent to at least 10% of the purchase price of the first home need to be deposited into a special savings account. This provides additional security, which helps the first-time buyer secure the necessary mortgage to buy his or her home.
While the family’s savings need to be kept in the special account as security for a minimum of five years, after that interval the savings may be withdrawn again – together with the interest that has been earned on those savings.
This is seen as a win-win result both for the first-time buyer who gets to own their own home and the family members who have supported that purchase and earned interest on their savings into the bargain.
What are the key features of the Barclays Bank Family Springboard Mortgage?
Barclays Bank offers a Family Springboard Mortgage that is similar to other springboard mortgages in the UK. However, there are a few key differences.
First, the Barclays Family Springboard Mortgage is only available for first-time buyers. Second, the deposit must be at least 10% of the purchase price of the property. Third, the savings account that your family member or friend deposits the money into will be locked for five years.
If you are a first-time buyer and you have a family member or friend who is willing to lend you a deposit, the Barclays Family Springboard Mortgage could be a good option for you. It can help you get a larger deposit than you would be able to save yourself, and this can make it easier to qualify for a mortgage and get better interest rates.
Here are some of the benefits of the Barclays Family Springboard Mortgage:
- You can borrow up to 95% of the value of the property you are buying
- You can get a fixed interest rate for five years, which can give you peace of mind knowing that your repayments will not change during that time
- You can make overpayments on your mortgage without penalty
Here are some of the risks of the Barclays Family Springboard Mortgage:
- You will be responsible for repaying the deposit to your family member or friend, even if you are unable to make your mortgage repayments
- The savings account that your family member or friend deposits the money into will be locked for five years, so you will not be able to access the money during that time
If you are considering a Barclays Family Springboard Mortgage, it is important to weigh up the risks and benefits carefully before you make a decision. You should also talk to a financial advisor to get advice on whether or not this type of mortgage is right for you.
Can I get a 0% deposit family springboard mortgage?
Some lenders have expressed such confidence in 0% deposit mortgage arrangements such as this that they will offer a no-deposit family assist mortgage.
For first-time buyers who are finding it next to impossible to raise funds for a deposit, of course, this might be welcome news indeed. They may be able to get on the housing ladder even sooner than they anticipated – and no longer have to rent or live at home.
How much can I borrow on a family springboard mortgage?
While a springboard mortgage helps instil a greater sense of confidence in the lender, an assessment still needs to be made of your ability to repay the monthly mortgage instalments.
How much you can borrow, therefore, remains a question based on your current income and outgoings, whether you have any deposit to offer, the value of the home you want to buy, your credit rating, and other financial circumstances.
Can I get a springboard mortgage with bad credit?
It may go by several different descriptions, but if you have bad credit, adverse credit, or a poor credit record, it means that sometime in the past, you have encountered difficulties in managing your debts. Late payments or defaults adversely affect your credit score.
Even if you have that poor record, however, there are certain lenders – including many in our own network of approved lenders – who remain committed to advancing mortgages to you.
If you have bad credit, you might want to discuss the reasons for such a record with your mortgage adviser or broker who can then help to identify those lenders most likely to entertain your application. With that kind of initial assessment by your mortgage adviser, you may avoid further rejection by any potential lender. This rejection will only serve to undermine your credit status still further.
How can I find the most appropriate deal?
As with any mortgage product – and especially one as relatively new as a family springboard mortgage – you might want to consult your mortgage adviser to secure the most appropriate deal for you.
What is a Family Springboard Mortgage?
A Family Springboard Mortgage is a type of mortgage product designed to help first-time buyers get on the property ladder. It allows family members to assist with the mortgage deposit by placing a sum of money in a linked savings account as additional security.
How Does a Family Springboard Mortgage Work?
In a Family Springboard Mortgage, the family member (often referred to as the ‘helper’) places a sum of money into a savings account linked to the mortgage. This acts as security, enabling the buyer to secure a mortgage loan with a lower deposit requirement. The money is usually locked in for a set period of time, and if the mortgage payments are made on time, it’s returned with interest.
Who Can Be a Helper?
The ‘helper’ in a Family Springboard Mortgage is usually a close family member like a parent or grandparent. However, eligibility criteria can vary from mortgage lender to mortgage lender, so it’s advisable to seek expert advice.
How Much Deposit Do You Need?
The deposit requirement can vary, but the appeal of a Family Springboard Mortgage is that it often allows for a smaller personal deposit. Sometimes, you might not need a deposit at all, depending on the mortgage lender’s terms and the additional security provided by the family member.
Can You Get a 100% Springboard Mortgage?
Some lenders may offer a 100% mortgage loan under a Family Springboard arrangement, meaning you wouldn’t need to provide a deposit yourself. However, this would still require a family member to provide additional security.
What Happens if I Miss Mortgage Repayments?
Missing mortgage repayments can lead to negative equityA situation where the value of the property is less than the... and may put the helper’s savings at risk. It’s crucial to understand the financial commitment involved and consult with a mortgage advisor for independent advice.
Are There Alternatives to the Family Springboard Mortgage?
Yes, there are other types of mortgage products like guarantorA person who guarantees to repay a mortgage if the borrower ... mortgages, family offset mortgages, and traditional mortgages that might suit your individual circumstances. Each has its pros and cons, and it’s advisable to consult a mortgage expert or mortgage adviser for tailored advice.
What Are the Benefits and Risks of a Family Springboard Mortgage?
The benefits include a lower deposit requirement, making it easier for first-time buyers to enter the property market. Risks involve financial burden on the family member acting as a helper, and potential negative impact on credit scores if mortgage repayments are missed.
Should I Get Legal Advice Before Applying?
While not mandatory, getting legal advice is often recommended to understand the implications for both the buyer and the helper. It ensures that both parties are aware of their responsibilities and the financial commitment involved.
How Long is the Typical Mortgage Term?
The mortgage term can vary but is commonly set between 25 to 35 years. The length of the term will affect your monthly mortgage payment, so it’s essential to consider this when making your mortgage application.
Can I Use My Parents’ House as Collateral for a Mortgage?
Some lenders may allow this as a form of additional security, but it’s a significant financial commitment that should not be taken lightly. Always consult a mortgage expert and seek legal advice before proceeding.