Saffron Building Society is just about the latest mortgage lender to permit first-time buyers to use savings from the member of the family as security when purchasing a home.
The 95% ltv (LTV) deal requires both the borrower and their family to set up 5%. However the money from the relatives is kept in a checking account as security.
This is only the latest in a long line of deals where members of the family might help first-time buyers to the property ladder, with some even letting you buy deposit-free. But each deal works inside a slightly different way, so you need to comprehend the way it operates.
Here, we explain how this deal works and just how it compares with other products targeted at buyers with low deposits.
Saffron’s new guarantor mortgage
The new product, which has no arrangement fees, allows buyers to have a lower rate than a typical 95% deal from Saffron.
Buyers about this mortgage pays 2.97% interest (4.64% APRC) over a five-year fixed-rate period. By comparison, a typical five-year fixed-term mortgage from Saffron is 3.27% (though the APRC is identical, at 4.64%).
The deposit in the family member would be held in a checking account for the 5 year entire mortgage and returned with interest of 0.75%.
In addition, the upfront 5% deposit can be gifted by a family member.
The deal is similar to one launched by Lloyds earlier this year, where buyers could buy with a 100% mortgage, but 10% from the property value had to be deposited right into a checking account.
How does Saffron’s mortgage deal compares
There exist several mortgages on the market that accept family members’ savings as security.
However, the eye paid around the deposited money and also the time when the savings are unlocked varies.
The table below shows the very best ‘savings as security’ guarantor mortgages according to MoneyFacts.
As the deals differ so greatly, you should make sure you check:
| Provider | Mortgage name | Savings required (% of recent property cost) | When would be the savings unlocked? | Interest paid on savings |
| Barclays | Family Springboard | Minimum 10% | Three years | 2.25% |
| Family BS | Family Mortgage – Security through Savings | Varies | On review | 1.15% |
| Lloyds | Lend a Hand | Minimum 10% | Three years | 2.50% |
| Loughborough | First Time Buyer Family Deposit | lb5,000 – lb75,000 | Once amount guaranteed has been repaid | 0.00% |
| Marsden | Family Step | Up to 20% | One mortgage reaches 80% LTV | 1.35% |
| Mansfield | Family Assist | 20% | Seven years | 1.00% |
| Saffron | Family Support | 5% | Five years | 0.75% |
| Tipton | Family Assist | 20% | Once mortgage reaches 80% LTV |
Keep in mind that these deals aren’t risk-free. If you miss any mortgage repayments, the lender could hold on to your family member’s savings for a longer period.
And when the lender had to repossess then sell your property, they might recoup any difference outstanding from the mortgage out of your family member’s cash.
In addition, the speed you earn on your savings is comparatively low. The speed of inflation was stuck at 1.9% in March, meaning only Lloyds and Barclays offer inflation-busting interest rates on the cash holdings – so that your money may be losing value in real terms.
As you own so very little from the property outright, you also risk slipping into negative equity – in which you owe a lot more than the property is worth – if house prices drop in the early many years of your ownership.
Read more: guarantor mortgages explained
Types of family deposit mortgages
The above deals all focus on offering up savings as security, but there are other types of guarantor mortgages that allow family members encourage.
Property as security
Your family member can offer a charge on their home, typically between 20% and 25% of the property value, as security for the mortgage.
The relative must own a certain share of the property outright, which can be between 25% and 60%.
These kinds of mortgages are being provided by lenders Aldermore, Bath, Buckinghamshire, Family Building Society, Loughborough, Marsden, Mansfield, Nationwide, Mailbox and Tipton.
In the worst case scenario, when the lender needed to repossess and sell your home for less than the remaining mortgage amount, your family member could lose their house.
Family offset mortgages
These loans need a family member to place their savings into a merchant account associated with your mortgage.
If you got a home loan of lb100,000 and your loved ones member deposited lb20,000 inside your account, you would then only pay interest on lb80,000 of the loan.
But if the lender had to repossess your home and there was a shortfall, they could recoup the cash out of your family member’s savings.
Family Link mortgage
With the Mailbox Family Link mortgage, you can borrow up to 100% of the property’s value. You borrow 90% having a mortgage against the property you’re buying, and the remaining 10% as a mortgage secured against your family member’s home, that they must own outright.
If you miss any of your mortgage repayments, your loved ones member is only accountable for the 10% that you borrowed against their home.
Joint Borrower Sole Proprietor (JBSP) mortgage
A joint borrower sole proprietor mortgage allows a parent or gaurdian to assist their child purchase a home by adding their security towards the mortgage.
But unlike a typical joint mortgage, the parent isn't named on the title deeds. What this means is first-time buyers can still take advantage of the stamp duty discount, which could save them thousands.
Read more: JBSP mortgage
95% mortgages
If you wanted to prevent the financial institution of mum and dad, then you can secure a mortgage and a potential a 5% deposit up front.
Earlier this month, Loughborough Building Society offered a market-leading 95% two-year discount mortgage.
But typically, you’ll often wind up paying higher rates than you may with a larger deposit, and you run a greater risk of slipping into negative equity.
Read more: 95% mortgages
Additional reporting by Stephen Maunder
