Family Offset Mortgages

by Mark Johnston

In the current economic climate most first time buyers rarely have any savings to help them in buying their first homes.

A family offset mortgage can be one answer, although these types of mortgage do not help first time buyers on to the property ladder, they can reduce their interest repayments once they have obtained a mortgage.

Family offset mortgages work in exactly the same way as a regular offset mortgage but it enables family members with savings to help out the first time buyer by offsetting their savings against the mortgage.

However, this particular mortgage option is only offered by very few lenders as it is seen as a niche product. Lenders that do offer it include Abbey, Britannia, Clydesdale bank, Yorkshire building society and Lloyds TSB to name but a few.

Michael white, of email mortgages, states “an offset mortgage is not a practical choice unless there is sufficient spare cash to gain the desired benefit”.

Lloyds TSB offer a ‘lend a hand’ mortgage. This mortgage means that the potential borrower only needs a 5% cash deposit and then the backing of someone with savings of up to 20% of the desired property’s value. Therefore meaning that the borrower can benefit from a lower mortgage rate similar to those available to borrowers with a full 25% deposit.

This mortgage is a particularly good option for someone, usually a parent, to help the potential borrower as they still earn interest on their savings unlike normal offset mortgages.

The other advantage of this deal is that the family member can have access to their savings at any time and the borrower does not, therefore it can be a great way to help out as it does not actually cost the saver any money.

The deal is fixed for 3 years with an overall comparison of 4.4% APR (annual percentage rate) and potential buyers can borrow between £5,000 and £350,000.

The family member willing to help opens a special ‘lend a hand’ savings account and makes a lump sum of 20% of the property’s value in to this account.

Stephen Noakes, commercial director of mortgages, suggests “it is not always easy to pull together a big deposit in today’s market, but this product can make the move to a new home not only more achievable but more affordable”.

David Hollingworth, of independent brokerLondonand Country, said “lend a hand first and foremost is a good idea, it basically offers first time buyers a decent rate, which they would not find anywhere else. The trade off is the fact they are looking for a parent to lock in 20% of their savings”.

It seems however things are always too good to be true as deals such as the ‘lend a hand’ deal are set to be banned under current proposals in the European mortgage directive.

This particular part of the proposals stipulates that lenders will no longer be allowed to sell mortgage deals that are linked to savings accounts.

The Building Societies Association (BSA) said “our interpretation of this proposal is that it is referring to parentally guaranteed mortgages where the deal is partially guaranteed on the parent’s savings”.


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