Mortgage Blog: New building society launches with imaginative range of ‘family’ mortgages
The UK's first new building society in more than three decades has opened its doors by offering a revolutionary new ‘family' mortgage. The scheme, offered by the Family Building Society, will allow parents and grandparents to help their children and grandchildren onto the housing ladder with a deposit of as little as 5%.
New ‘family' mortgage lets relatives help young buyers
The Family Building Society is the UK's first new mutual since the launch of the Ecology in 1981. Their ‘family' mortgage is available to buyers who can raise a 5 per cent deposit. Relatives must then provide security of another 20% in order to take the total to 25%.
Parents and grandparents can do this by opening a savings account with the Society where the funds are deposited. They then forego interest payments on the savings and, in return, the house buyer only pays interest on the value of the loan minus the value of the savings deposited. The savings are still owned by the family member but cannot be reclaimed for 10 years.
For example, on a property purchase at £150,000, with a £7,500 deposit and £30,000 of savings held in a non-interest paying account, the borrower would only pay interest on £112,500.
Mark Bogard, Chief executive of the Family Building Society said: "Young adults even with high paying jobs are struggling to meet the cost of living so they are either living in rented accommodation longer than ever before or are being forced to live at home. Thus they need help to get on the property ladder."
"Our research shows that children would rather soldier on than take money out of their parents' retirement pot. Our family mortgage gets buyers on the property ladder sooner and keeps family members in control of their money. And because it's a formal arrangement everybody knows where they stand."
Society expecting to start small
The new building society also offers an option where parents and other relatives who are asset rich but do not have spare cash can use their house as security. A parent can pledge a 20% deposit but only pay up if the borrower fails to keep up their repayments.
The building society says that it does not expect an enormous level of take-up, claiming that 1,000 such mortgages in the first year would be a good start.
Other products offered by the new lender include a ‘low start mortgage' for couples who get divorced which offers stepped monthly payments which are kept at low levels for the first two years.