First Time Buyer Guarantor Mortgages

First Time Buyer Guarantor Mortgage.

A guarantor mortgage is a type of home loan where a third party, usually a family member or close friend, agrees to be legally responsible for the mortgage if the borrower is unable to make their payments. This third party, known as the guarantor, helps the borrower secure the mortgage, often when they have a limited credit history, low income, or no deposit.

The guarantor offers their own assets (either savings or property) as security for the loan. This means that if the borrower defaults on the mortgage, the lender has the right to use the guarantor’s assets to cover the missed payments.

Here are two common types of guarantor mortgages:

1. Savings as Security: The guarantor deposits a lump sum into a special savings account linked to the mortgage. This money is held as collateral and can be accessed by the lender if payments are missed.

2. Property as Security: The guarantor uses the equity in their own property as collateral, allowing the lender to place a charge on their property if the borrower defaults.

While a guarantor mortgage can help borrowers who might not otherwise qualify for a traditional mortgage, it comes with significant risks for the guarantor, who is liable for the debt if the borrower cannot repay.

Guarantor mortgages are often aimed at first time buyers although other applicants may also be eligible.

Family Deposit Mortgages

A Family Deposit Mortgage (also known as a Family Assist Mortgage or Family Boost Mortgage) is a type of home loan designed to help first-time buyers or those with low deposits get onto the property ladder with assistance from a family member, typically a parent or grandparent. Here’s how it typically works:

1. Family Member as Support: A close family member provides financial assistance, often by using their savings or equity in their own home as security for the mortgage.

2. Savings as Collateral: The family member deposits money (often around 10% of the property’s value) into a special savings account with the mortgage lender. These savings are held as collateral in case the borrower defaults on their mortgage payments. The family member usually gets the money back after a set period (e.g. 5 years), assuming the borrower keeps up with their payments. Some also earn interest on their savings.

3. Equity in Property: In some cases, the family member might use equity from their own property to act as security for the loan, allowing the lender to place a charge on their property. 4. Reduced Deposit for the Borrower: This support allows the borrower to secure a mortgage with little to no deposit of their own, sometimes as low as 0-5%, which wouldn’t be possible under normal circumstances.

Key Points:

• The family member doesn’t own a share in the property and isn’t required to make monthly payments unless the borrower defaults.
• The family member’s assets (savings or property equity) are tied up for a certain number of years until the borrower demonstrates they can reliably meet the mortgage payments.
• Some family deposit mortgages come with competitive interest rates due to the reduced risk for the lender.
• It’s an attractive option for first-time buyers who may not have a large deposit but have a family member willing to help them get started. While this type of mortgage can be a great help for some, it also comes with risks for the supporting family member, especially if the borrower struggles to meet their payments.

Family Offset Mortgage

A family offset mortgage is similar to a family deposit mortgage, but with one key difference: your family member doesn’t earn interest on their savings. Instead, the savings are used to reduce the amount of interest you pay by offsetting the mortgage balance, resulting in lower monthly payments.

What are the advantages of £0 deposit mortgages?

• No Need for a Lump Sum Deposit: The most significant benefit of a £0 deposit mortgage is that you don’t need to save for a deposit, which can often be the biggest barrier to homeownership.
• Faster Entry into the Housing Market: You may be able to purchase a home sooner if you don’t need to save for a deposit/ This is particularly helpful if house prices are rising, as waiting to save a deposit could make properties more expensive in the future.
• Useful for Renters Struggling to Save: If you are finding it difficult to save while paying rent and living expenses, a £0 deposit mortgage may allow you to buy a home without needing to balance saving for a deposit and covering other costs.

What are the disadvantages of a £0 deposit mortgage?

• You risk falling into negative equity: This means your home could become worth less than what you paid for it.
• Mortgage rates may be higher: This is due to the fact that there are fewer 0% deposit mortgages available in the market. Potential financial risk for your guarantor or family member if they are supporting your mortgage: Their property may be at risk if you miss payments, or they might be unable to access their savings for a set period.

It is worth noting that with all of these products, other costs associated with purchasing a property (e.g. valuation fees and legal fees) may apply. Find more information about the costs of buying a home here.

If you want to find out more about your mortgage options and whether you are eligible for a 100% mortgage, get in touch with our expert team. They can conduct a full affordability assessment and advise you on your mortgage options, guiding you every step of the way.