First-time buyers without a deposit could now potentially borrow half-a-million pounds if they enlist the help of family or friends.
Barclays has revealed changes to its Family Springboard range allowing new homeowners to take out larger mortgages for longer.
The deals, which were the first of their kind when introduced six years ago, let homebuyers borrow deposit-free by linking their mortgage to a friend or relative’s savings.
These savings – the equivalent of 10 per cent of value of the home – are locked away in a Barclay’s fixed term savings account for five years as security for the home loan, while the homebuyer pays down the mortgage.
Barclays was the first lender to offer a mortgage which links a third party’s savings to the loan
While it’s called the Family Springboard mortgage, it doesn’t need to be a family member doing the helping – Barclays says anyone with the equivalent deposit can act as the guarantor.
The bank has now tweaked its deals so that homebuyers can take on more borrowing – up to £500,000 – over a longer period of time by extending the term limits to 35 years.
But do the deals still stand up? We take a look…
How does it work?
The idea behind the Family Springboard mortgage is actually quite simple.
Instead of gifting a deposit, the guarantor opens a Barclays ‘Helpful Start’ account linked to the mortgage, into which they deposit savings equal to 10 per cent of the price of the house.
After the five years is up, the money in the account is returned with interest. The interest rate on the Helpful Start account tracks a margin of 1.50 per cent above the Bank of England Base Rate – currently 0.75 per cent – meaning savers get a 2.25 per cent return.
By way of comparison, the best buy five-year fixed rate savings bond is currently 2.75 per cent from Gatehouse Bank.
The idea is that in this time the homeowner will have paid down enough of their mortgage to be able to remortgage to a lower loan-to-value mortgage when the five years is up.
As an example, imagine a parent putting £20,000 away to act as the deposit on their child’s £200,000 house.
After five years at an interest rate of 2.95 per cent, the homeowner will have paid off £26,241 of the loan. This means they’d then be able to remortgage onto a standard 90 per cent loan-to-value deal, possibly at a slightly cheaper rate.
Assuming base rate had stayed the same, the parent would then get their £20,000 back – plus £2,252 interest.
Hannah Bernard, head of Barclays Mortgages, said: ‘Barclays’ own research has shown that many first-time buyers view the money for a deposit as a gift that doesn’t need to be paid back, therefore placing a significant levy on the Mum and Dad.
‘The Family Springboard mortgage has been specifically designed to remove the financial burden from parents and to ensure they receive their deposit with interest at the end of the five-year fixed-rate period.’
How it’s changed
While it was introduced in 2013 the deal didn’t come with a deposit-free option until 2016.
Today, the bank announced a further raft of changes.
Firstly the fixed rate period has been extended from three to five years, with the term extending from 25 to 35 years.
This extended term will mean that potential first-time buyers will be able to borrow a larger sum as the loan is spread over a longer period. That brings down monthly repayments, although, if you take the full 35 years to pay off the mortgage then you will end up paying significantly more interest overall. This can be mitigated if you overpay your mortgage (within allowed limits) or shorten the term later when you come to remortgage.
Barclays is offering a five-year fixed rate at 2.95 per cent for the no-deposit option and a five-year fixed rate of 2.75 per cent if the homebuyer has a 5 per cent deposit to put in on top of the 10 per cent savings.
There are no fees and the minimum loan size is £5,000, up to £500,000.
Jonathan Harris, director of mortgage broker Anderson Harris, said: ‘Extending the term and product range will give more choice to customers and puts Barclays way out in front on this, particularly as it will lend 5.5 times income to borrowers with a joint income of more than £50,000.
‘The maximum loan size of £500,000 links up nicely with the stamp duty threshold for first-time buyers and the rates are competitive.’
The interest rate on the linked account tracks a margin of 1.50 per cent above base rate
How does it compare?
Considering that deals of this type are few and far between, the rates on offer are actually fairly competitive.
The cheapest fee-free five-year fix at 90 per cent loan-to-value is Post Office Money’s 2.06 per cent deal, followed by Bank of Ireland’s 2.09 per cent deal – not a world away from what Barclays is offering with its Springboard mortgage.
In terms of how it compares to previous iterations of the deal, your view on this probably depends on whether you’re the homebuyer or the guarantor.
Rates are slightly cheaper, 0.04 per cent, a lot considering the deals are now five-year fixes instead of three-year fixes.
The main advantage of a longer fix and longer term period is that borrowers will be able to take on bigger loans, as spreading out the mortgage for longer means the buyer can take on more borrowing.
For the gifters however, the new five-year fixes mean tying up savings for an extra two years.
Harrison added: ‘The biggest improvement is the extension of the term to 35 years. With most of these borrowers in their late 20s or early 30s, they have plenty of time to pay the mortgage back.’