How A Family Offset Mortgage Can Help First-Time Buyers

First time buyers need help and a family offset mortgage could be the answer. With property prices still inaccessible, impossible mortgage loan criteria and the burden of graduate debt, many would-be purchasers are finding that property ownership is too far out of reach. In fact, some young people are probably resigned to never getting home finance. But despite all these barriers, some mortgage lenders have come up with an innovative way to make home ownership more affordable using the savings and the equity of older members of the family. Enter the family offset mortgage – the mortgage that needs all the family’s help.

The family offset mortgage was introduced a couple of years ago into this country, but only now the recession is taking hold will its true potential shine. Like other offset mortgages, family mortgage offset deals allow savings accounts and current accounts to be linked to mortgage accounts so that the borrower pays less interest on the mortgage debt. The difference is that a family offset mortgage allows borrowers to link the savings accounts of family members and friends to their mortgage account. Some family offset mortgage providers limit the holders of linked accounts to relatives by birth or adoption. However, other offset mortgage lenders are less choosy, and will even accept linked accounts from friends. In addition, some mortgage lenders may limit the number of savings accounts that might be linked to a family offset mortgage or may specify where those accounts should be held.

This difference aside, a family offset mortgage works just like other offset mortgage accounts. The linked savings accounts do not earn interest. Instead, the balances are offset against the mortgage debt. So someone with a mortgage of £100,000 with three linked savings accounts with £10,000 each would pay interest only on the remaining debt of £70,000. A family offset mortgage is an ideal way for parents, grandparents or siblings to help first time buyers own their own home. Of course, borrowers still need to be able to afford the deposit, but a family offset mortgage means less interest is repayable so repayments may be within reach.

A family offset mortgage has the flexible features of other offset mortgage accounts. With family mortgage offset deals, borrowers can make larger mortgage payments, pay less from time to time, take payment holidays, make lump sum payments and even repay the family offset mortgage early. However underpayments and payment holidays could increase the mortgage term and even the total amount payable. This is because interest is calculated daily and is only charged on the debt on the family offset mortgage, so borrowers are overpaying every month.

Lenders who offer a family offset mortgage will demand to see plenty of savings on both sides, the ability to repay debt and a clean bill of credit health. But regardless, this type of mortgage means that parents still have access to their savings but that many graduates can realise the dream of owning their own home. Unlike mortgage guarantor schemes, with a family offset mortgage there is no risk to the people who own the linked savings accounts, because the accounts stay in their names. They can draw on their savings at any time, though this means that the family offset mortgage holder will have more to repay.

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© 2007 and 2008 Offset Mortgage Centre | Terms and Conditions | Privacy Statement | We don't charge a fee for admistration of an offset mortgage. The Offset Mortgage Centre is the trading name of The Mortgage Broker Ltd, (a whole of market mortgage broker), which is an appointed representative of Home of Choice Limited, which is authorised and regulated by the Financial Services Authority | *Source Barclays Bank: Calculation based on an offset tracker product; repayment mortgage of £100,000 over a 25-year term that has been offset with £20,000 savings, resulting in a reduction in mortgage term of 8 years and 8 months or a saving of £44,867 in overall interest. Calculation assumes balance remains constant throughout the life of the mortgage and that the mortgage loan and savings balance will vary. Outcomes will be either a reduction in payments or a reduction in mortgage term. No interest is paid on balances offset against the mortgage. Typical rate is 6.45% (variable). | Your home may be repossessed if you do not keep up repayments on your mortgage.