Family Assisted Guarantor Mortgages

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What is a family-assisted mortgage?

A family-assisted mortgage enables family members to help someone get a mortgage in order to buy a property. With the onset of Coronavirus, many first-time buyers have been struggling to find deposits and meet the affordability requirements set by lenders to secure a mortgage.

Family-assisted mortgages have allowed clients whose relatives have equity in their property, savings, or are mortgage-free, to increase their loan amount. Historically, parents would only be able to gift their children money as a deposit, but there are now a variety of ways in which families can help you to purchase a home.

What is a guarantor home loan?

A family-assisted mortgage is sometimes also known as a guarantor home loan. The various options for this type of mortgage are listed below

Gifting a deposit

This option is simply where the family covers the mortgage deposit with a cash gift. It has become more common in the last few years.

Joint Borrower’s Sole Proprietor

With this option, there are a number of people on the same mortgage, but only one of the applicants is on the deeds and lives in the property. The other applicants are simply there to increase the lending power, as their income and circumstances will be considered alongside the main applicant.

The main benefit of this option being that you are able to purchase a property that you wouldn’t otherwise afford. The risk factor is that the family member(s) on the mortgage with you, are responsible for paying that mortgage if you fail to. This will also affect their credit score.

A Savings Deposit

When you have a cash-rich relative willing to help, you can ask them to deposit a sum of money (savings deposit) with your lender, allowing you to take out a mortgage without putting down a deposit. They have to be willing for their money to be locked into the account for between five and ten years. In most cases, they will still gain interest on their savings.

Collateral Charge Option

This is a great option for family members who want to help but have minimal cash savings. So long as they have a good amount of equity in their property, the lender will put a charge on their property equal to the deposit amount.

This method works in a similar way to the savings deposits option, but no money exchanges hands. The charge on your relative’s property does leave their home vulnerable to repossession in the case that you are unable to pay the mortgage for a long period of time. This would very much be a last resort, however, and there are significant processes in place prior to court proceedings, so the risk is actually minimal.

Those considering helping a family member in this way should be aware that, although a collateral charge doesn’t affect their mortgage in any way, for example, it won’t increase their repayments, they won’t have the option to sell or remortgage their property until the charge period has ended. Most lenders will insist that those offering this type of help take legal advice themselves, prior to the application process, so that they are fully aware of the potential implications.

Can only family members help you?

There are lenders who allow non-family members to be a guarantor, especially when it comes to the savings deposit option. If, for example, a friend is willing to deposit a sum of money for you, specialist lenders may be willing to consider it, although it is uncommon.

How much can the borrower get with a guarantor loan?

Typically speaking you could expect to be able to borrow four and a half times your household income. With a guarantor, this stays the same, because your affordability still has to meet the full cost of the mortgage.

For those looking to borrow more, the Joint Borrower, Sole Proprietor option is the most likely to benefit them. Ideally, the family member(s) named alongside you on the mortgage have paid off their mortgage in full. Therefore they can offer more disposable income towards the overall affordability.

Are there any other benefits to a family-assisted guarantor mortgage?

Alongside the obvious benefit to the applicant of either being able to purchase a bigger, higher-value home or in some cases, afford one at all, many parents also benefit from the pleasure of being able to help their children.

Private rents can be very high and many people nowadays have not managed to save a deposit well into their thirties, as a result of this. Parents, or any relatives, who are in a position to help their children, grandchildren, etc to get onto the property ladder often feel great relief having provided them with stability.

What should parents look to help their children buy a home do?

As there are quite a lot of options, the best thing to do is talk it over. You can either call Better FS or go to their website and send an inquiry form. We need to understand your circumstances and your child’s circumstances so that we can ensure that we recommend the right product for you. The first consultation is free and fees are not payable until we put your application forward to the lender.

As well as arranging the mortgage for your child, we can look at putting protection in place for you. Whilst it’s a simple solution to helping your child buy their first home, a bank is unlikely to explore the variety of options as thoroughly as a mortgage broker, so it’s worth that initial consultation, to make sure you are armed with all of the information you need to make a well-informed decision.

Family Assisted Guarantor Mortgages
Family Assisted Guarantor Mortgages

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