After the recent mortgage crash, the maximum loan to value with mortgages has swung massively. From the peak of the ludicrous 120% mortgages, we plummeted down past 100%, to as low as 85% for most lenders. Things have been improving slowly since then, now with 90% loan to value becoming the norm.
There have been various attempts by lenders to come up with new and innovative ways to offer 95% mortgages, but we have found the hurdles which are in the way too high for most people. Whether it be the need for a super-super-credit record, the tricky requirement to guarantee part of the loan on a family members mortgage-free property, or the lender using low income multiples for assessing cases, these deals haven’t been very accessible.
The latest idea comes from Barclays, trading as ‘The Woolwich’. It is called the Family Springboard Mortgage, and it works by a family member opening a bank account with Barclays for a period of no less than 3 years, and depositing an amount equal to 10% of the price of the property being purchased. The borrowers need to put down a 5% deposit, and they are then lent a 95% mortgage. The family members 10% will grow at a rate of 2% per annum for a period of three years. The family member’s money is then returned to them straight away, as long as the borrowers keep up to date with all of their payments during that time.
I think it’s a great solution for those who have family that are willing to help. The biggest problem for them is how to approach your family member, asking them to trust you with thousands of pounds, and tie their money up for three years. That’s why I think it is important for the ones that are able to help to be aware of what is available, how it works, and even to offer your help if it’s there incase people are too polite to ask.
It could be one of the most generous and helpful things you ever offer your children or grandchildren, and not only could it be the difference between them being able to buy a home or not, the interest rate is also very attractive for a mortgage with just a 5% deposit. The current rate being offered is fixed at 4.69%, which could save your family thousands of pounds each year compared to the alternative 5% deposit mortgages, for which rates are currently around and above 5.5%.
It’s not only first time buyers who can benefit, it is next time buyers too, for those who have outgrown their current home, but are stuck because of the lack of equity in their property.
It’s not often we praise the banks, but I’m saying hats off to Barclays with this idea. Not only does it offer another alternative in the mortgage market, but it promotes family values and unity, and if it takes off, could give a real boost to the UK mortgage and housing market.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Jason Hinde DipPFS
1st April 2013
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