The Post Office has launched a mortgage designed to help first-time buyers get onto the property ladder without the need for a deposit.
The deal – known as the family link mortgage – works by giving the first-time buyer a 90 per cent loan-to-value mortgage secured against the property they’re buying plus an interest-free five-year loan secured on a close relative or parent’s home.
There’s a catch – the parental home needs to be mortgage-free for the buyer to be eligible.
But unlike alternative family mortgages, this one costs the parents nothing so long as the buyer repays the loan on time.
The Post Office family link mortgage aims to help first-time buyers without a deposit
How does the family link mortgage work?
THE SMALL PRINT
Maximum mortgage size: £500,000
Maximum term: 35 years
Your assistor must be a close relative including parents and step-parents, brothers and sisters and step-brothers and step-sisters.
You must be a first-time buyer in order to apply. For joint applications, this applies to both buyers.
You will be assessed on your ability to meet the repayments for both mortgages.
Your minimum income needs to be at least £20,000 and you must be able to provide evidence of this.
The buyer makes two separate repayments for the first five years – one towards the assistor’s mortgage, which is interest-free, and another towards the 90 per cent mortgage, which is charged at a pretty expensive 4.98 per cent for a five-year fixed rate. The deal is fee-free.
Say you want to buy a property worth £200,000 using the deal, you would take a mortgage for £180,000 on the 4.98 per cent five-year fixed rate plus a £20,000 interest-free loan secured against your parent or relative’s home.
On a standard 25-year term, your monthly repayments for the first five years would be £1,050 a month for the mortgage repayment plus £333 for the 10 per cent deposit loan.
Overall, to qualify for the deal you’ll have to be able to demonstrate that you can afford to repay £1,383 a month.
Because the deposit loan is secured against a relative’s property, both properties are at risk of being repossessed by the bank if you fail to keep up with your payments.
For this reason, it’s probably a good idea to get separate legal advice on the implications.
How does it compare?
The Post Office rate of 4.98 per cent is pricey for a 90 per cent LTV deal. The cheapest rate on offer for those with a 10 per cent deposit is just 2.34 per cent with a £900 fee from Atom Bank.
However, this deal is only available to buyers who have access to a cash deposit – either that they have saved themselves, or which has been gifted to them by family.
On the same mortgage as above, monthly repayments on this deal would be far lower at £793 – a full £590 a month less than the Post Office deal.
Not everyone has access to a £20,000 deposit though, so for first-time buyers in this position, the Post Office deal could be a good option.
Before plumping for it, there are a few alternatives for first-time buyers looking to purchase with the help of a relative.
Nationwide also offers a family mortgage scheme but it works in a slightly different way. Homeowners who currently have a Nationwide mortgage can apply to borrow a bit more and then gift this money to a relative to use as a cash deposit for their own purchase.
In order to qualify, both borrowers must get their mortgage from Nationwide and it’s not restricted to first-time buyers. Rates start at 1.39 per cent for the two-year tracker and 1.69 per cent for the two-year fixed rate. A five-year fix is 2.09 per cent.
Barclays offers a Family Springboard mortgage that allows first-time buyers to leverage their parents’ savings to help them purchase a home.
This deal allows borrowers to take a 100 per cent LTV loan if family or loved ones can provide 10 per cent of the property’s price – in cash held with the bank – as security.
Its rate is fixed at 2.69 per cent for three years, is fee-free and your family gets their savings back after three years with interest as long as you keep up the repayments.
Aldermore Bank, Harpenden Building Society and Family Building Society also offer versions of a family mortgage.
This is Money Verdict
The best option depends on each individual’s financial circumstance, so to work out which is right for you, speak to an independent mortgage broker who can advise you on all of the available options and choose the best one for your circumstances.
Andrew Montlake, of mortgage broker Coreco, said: ‘When you’re comparing options, the key is to get proper advice since there is a lot of choice out there.
‘But that said, too many lenders say they listen to clients and then ignore their actual requirements, so it is great to see the Post Office being really innovative and delivering products that actually meet their customers’ needs.’
True cost mortgage calculator
This mortgage payment calculator will allow you to see the effect of sneaky arrangement fees on your repayments. Use the second part of the calculator to compare deals.