The Post Office has introduced a new ‘Family Link’ mortgage aimed at first-time buyers that can afford monthly mortgage payments but who don’t have a deposit to put down.
Buyers effectively take out two mortgages, one for 90% against the property they’re buying, and then a second one for the remaining 10%, which is secured against a parent or close relative’s mortgage-free property. This part of the mortgage is interest-free but must be paid back over five years.
This deal might appeal to parents who want to help their children to buy a property, but who don’t want to hand over a large chunk of their savings.
To be eligible, the home of the person or people wanting to help the first-time buyer must be mortgage-free, and they must be a close relative of the first-time buyer, so usually a parent, step-parent, brother, sister, step-brother or step-sister.
The buyer makes two separate repayments for the first 5 years, one towards each mortgage, and there are two five-year fixed rate deals to choose from to align with this.
After 5 years the buyer should have paid off the 10% assistor loan and reduced the balance on their 90% mortgage.
Understand the risks
Anyone considering helping their children or close relative onto the property ladder using this type of mortgage must make sure they’re fully aware of the risks involved.
For example, the first-time buyer is responsible for covering both mortgages, but anyone assisting them will have joint liability for the 10% assistor mortgage. That means if the first-time buyer can’t keep up with these monthly payments, the parent will then be responsible for paying this part of the mortgage. For that reason, the affordability of the parent or family member will also need to be assessed at the time of the mortgage application.
It’s therefore essential to take independent legal advice before deciding whether this type of mortgage is right for them.
There are other mortgages available to first-time buyers with no deposit to put down. Nationwide Building Society, for example, offers the ‘Family Deposit Mortgage’ which enables family members to borrow against part of the equity in their home and gift this to the homebuyer so it can make up their deposit. They must have their mortgage with Nationwide to be eligible.
Alternatively, Barclays ‘Springboard’ mortgage will provide up to 100% of the property value to first-time buyers who don’t have a deposit to put down, provided their parents agree to keep 10% of the purchase price in a separate savings account for three years. Parents will earn interest on their savings over this three-year period but can’t make any withdrawals until it finishes (assuming the mortgage payments are met).
Post Office launches new no deposit mortgage