A Quick Guide to Family Offset Mortgages

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Added on March 31st 2022

Family offset mortgages are becoming increasingly popular as parents are looking for more ways to help their children get onto the property ladder. You might have heard of family offset mortgages and be wondering how they work, so here’s a handy guide.

What is a family offset mortgage?

A family offset mortgage works in the same way as other offset mortgages, but the account holder and the mortgage holder are different people. Usually, the account holder is a parent and the mortgage holder is the child, although any nominated family members can set this arrangement up together.

Offset mortgages work by linking a savings account to a mortgage and the amount in the savings account offsets the loan, reducing the amount of interest payable on it.

The parents’ savings also improve the loan-to-value ratio (LTV), making it more likely that the mortgage holders will qualify for a slightly lower interest rate from the start.

An example

If someone needs a £200,000 mortgage to buy a property and their parents have £50,000 in a savings account, linking the two accounts as a family offset mortgage deal will reduce the loan amount to £150,000. This means less interest generated each month, as well as a better LTV.

Very often, once the mortgage holder has paid off a proportion of the home loan – usually 25-30% – the savings are returned to the parents, sometimes with interest.

What benefits do family offset mortgages offer?

The most obvious benefit of family offset mortgages is that they allow people to get onto the property ladder without having to save for a huge deposit. Then, of course, reduced monthly repayments are certainly another upside, as well as the potential for a better LTV.

Family offset mortgages help the parents, too, as they get their money back eventually, sometimes with interest added onto it.

Who’s eligible for a family offset mortgage?

Each mortgage provider has its own criteria and policies, but in general, as long as the mortgage applicant can prove they can make the repayments then they can be considered. With family offset mortgages there are additional considerations.

One consideration is who the lender deems to be a family member, as some (albeit not many) lenders will accept friends, neighbours and associates for family offset home loans.

In most cases, the people involved must be legal relatives, which includes step-children, civil partners and spouses, as well as parents and children and siblings.
Then there’s the matter of the sums involved…

How much savings do you need for a family offset mortgage?

A good rule of thumb is that the parents will need at least 10% of the property value in savings. If a house is valued at £300,000, for example, the parents will need at least £30,000 in their savings account. Some lenders ask for a minimum amount regardless of the property value, with others looking for a minimum annual income as well.

How do I find the best family offset mortgage?

As family offset mortgages are a fairly new product, you’ll probably be best advised to speak to a broker rather than stick to your own bank or mortgage provider. A broker will have market-wide knowledge of products and can also walk you through the application steps once you’ve settled on a particular provider.

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