Family Offset Mortgages

A family offset mortgage is a great way for loved-ones to help first-time buyers get the foot on the property ladder, without having to part with their savings permanently.

If you and your parents or other relatives are looking at this kind of product, you’ll need to know whether it’s an option for you, how it would work and how to go about securing one. Let’s take a look in further detail.

What is a family offset mortgage?

A family offset mortgage involves a family member securing your loan with their own savings until the lender is satisfied that you own enough of the property to take on the whole thing. This allows you to reduce the overall capital you owe, which in turn lessens the interest you will pay.

These kinds of loans provide first time buyers with a chance at getting a mortgage if they don’t have enough towards a deposit or they can’t raise the capital for the home they have their eye on.

A deposit can be a sticking point for a lot of would-be home owners, with the cost of living and high property prices making saving up for one tougher than ever. If any cash you do have only equates to 5% or 10% of a deposit, this reduces your mortgage options and any possibility of getting a favourable deal too.

How it works

A relative puts up their savings as security against your mortgage, which they get back at an agreed date in the future. Once you have paid enough of the total back to the lender and can take over the rest of the mortgage, your relative will have their money released back to them.

Essentially, you are reducing the loan-to-value ratio on your mortgage, as the amount you are borrowing from your relative is considered as capital, or deposit, towards your home. The borrowed amount is ‘offset’, even though it never actually pays for anything. Instead, it acts as a buffer, a guarantee for the lender that the payments will come from somewhere else if you default.

There are a number of conditions that must be met to satisfy lenders before they will green light your application with these mortgages, so you should seek advice from an impartial professional advisor before you begin your search.

Eligibility criteria

Each lender has their own set of rules which determines their eligibility criteria for family offset mortgages. The usual factors will come into play – affordability, credit rating, how much you want to borrow, property type, age, etc – but there are other restrictions to bear in mind too.

Savings requirements

Each lender will ask to see a minimum percentage, flat amount or income into the savings account that will be used to offset the mortgage. For example, some lenders might insist on £50,000 being in there, some might ask that at least 10-20% of the property value is available, while others could ask to see evidence of an income.

Family members

While it is less strict about exactly which family member is helping you with this kind of mortgage these days, some lenders still uphold strict policies around the relatives involved. On the other hand, some lenders are happy to consider linking with friends. Some allow more than one account to be linked to the mortgage – Clydesdale Bank goes as far as permitting up to six accounts, and Yorkshire Building Society up to three.

Deposit

Putting down any deposit is always a good idea, because it reduces your loan-to-value ratio and overall borrowing. That said, the savings being reserved for a parents and family offset mortgage can act as a deposit too. So if there is 20% of the property price in the savings, your mortgage will still only be 80% loan-to-value.

How an offset mortgage broker can help

There is no one-size-fits-all benchmark when it comes to specialist and complex products like family offset mortgages, and understanding where to begin your search in the first place can be as confusing and ineffective as going through a mortgage application when you don’t understand the market.

A good broker who has prior experience with offset mortgages, success and contacts in this field will be able to find the right lenders, find the right deals, and then ensure you’re eligible and clued up on what’s involved next. Understanding the process and, crucially, ensuring your application is in the best condition it can be in, will make all the difference to the long-term outcome of your homeownership.

Online calculators and lender websites barely scratch the surface of what’s involved. Established advisors, like the ones we work with, will offer support, guidance and reassurance throughout the process, help with your paperwork and act as a negotiator between you and the lender, with the aim of saving you precious time and money.

Payment options

There are a number of options open to you when it comes to paying back this kind of mortgage, both of which benefit from offsetting but have different short and long-term implications:

Reducing the term

The benefits that family offset mortgages will give you – namely, getting a better rate – means you might be in a position to reduce your mortgage term with the savings you’ve made in interest, therefore releasing you of your debt quicker and paying less in interest overall.

Reducing the payments

This option allows you to reduce the monthly payments with the gains you’ve made by offsetting, freeing up more disposable income. This opportunity will not lead to paying your mortgage off quicker, however, and your debt amount will remain the same.

Lenders who offer offset mortgages

A good number of both big high street lenders and smaller, more niche lenders offer offset mortgages, however how many of them are willing to offset with family savings is more vague. It is likely that each lender who advertises these products will make decisions on case-by-case enquiries, based on the strength of the application involved.

Lenders who offer these mortgages include…

• Natwest
• Barclays
• Family Building Society
• Accord Mortgages
• Beverley Building Society

One thing to keep in mind about offset mortgage lenders is that approaching one directly is not recommended. This could mean you run into restrictions or end up with an unfavourable rate.

There are brokers who specialise in arranging these mortgages and they have the knowledge, experience and lender contacts to make sure you’re placed with the ideal lender, first time.

Get matched to a specialist family offset mortgage broker today

It can be daunting to begin your search for such a niche product, especially when the criteria is so unspecific. Working with an experienced advisor who focuses their attention to specialist mortgages such as these will provide peace of mind and practical solutions going forward.

The brokers we work with are handpicked by us and matched exactly to those who need unique and tailored support and advice. We only work with reliable, highly trained experts who always provide five-star customer service and are dedicated to securing the best outcome for you.

To find out whether they can help you, call us on 0808 189 0463 or make an enquiry online for a free, no-obligation initial consultation with a broker who specialises in family offset mortgages today.