Content Writer
Mortgage Advisor & Director
It’s not easy to get onto the property ladder these days, but there are products that are designed to make life easier for first-time buyers, especially those lucky enough to have a family willing to help out. Offset mortgages help use savings to reduce the amount of interest you pay on your mortgage.
However, did you know they can even be used by those without any savings of their own? We look at family offset mortgages, how parents can use them to help their kids buy their first home, and how to find the right family offset deal for your needs.
What is a family offset mortgage?
Family offset mortgages allow your relatives to use their savings to reduce your mortgage interest. They work similarly to any other offset mortgage in that a savings account is linked to the mortgage to offset the interest payable. Some lenders allow as much as 100% of the mortgage interest to be offset, meaning the borrower would not have to pay any interest on their loan. They can also be used in lieu of a deposit, depending on lender criteria.
How they differ from a standard offset mortgage is that family members can offset savings, or in some cases, put a charge on their home, against a relative's mortgage. However, the majority of benefactors are parents, so it’s sometimes known as a ‘parent offset mortgage’.
This provides a valuable way to help loved ones get a step onto the property ladder, without the commitment of becoming a traditional guarantor, or giving away a large sum of cash as a gifted deposit. In fact, some lenders allow the held funds to be used in lieu of a deposit, however, in this case it would not be accessible until a certain criteria is met by the borrower.
Particularly useful to first-time buyers or those on a limited income, with a family offset mortgage, as many as six savings accounts (depending on the specific deal criteria) can be linked to one mortgage. The money usually remains accessible to the account owners, and can be withdrawn if necessary. However, in some cases the savings are ‘locked’ by the lenders until the mortgage holder(s) have reduced their LTV (loan to value) ratio to an agreed level. Following this period they are able to withdraw their savings as required.
How do they work?
When family members link their accounts to a loved one’s offset mortgage account, any balance held as savings reduces the mortgage balance by an equal level for interest calculation. For example:
Mortgage borrower takes out a mortgage of £300,000:
Their parents link 2 savings accounts with a total balance of £50,000 to the mortgage
Their uncle links a savings account with a balance of £25,000 to the mortgage
The total savings balance linked to the mortgage is £75,000
When the mortgage interest is calculated:
Rather than paying interest on the full £300,000 that they owe
The mortgage borrower will only pay interest on (£300,000 minus £75,000) so £275,000
On a typical 25 year mortgage of £300 with an interest rate of 5% this would equate to a saving of around £429 per month in interest. Which is £131,700 over the mortgage term.
Of course, the savings held in the linked account can be either reduced or topped up at any time, meaning the interest savings would change accordingly. However, any unused savings could make a real difference to the mortgage holder, allowing them to repay their mortgage more quickly or simply with more affordable repayments.
It’s important to note that any savings held in accounts linked to an offset mortgage will not accrue any interest, as this is being used to offset the mortgage holder's interest.
We'll help you compare family offset mortgage rates
Interest rates are generally a bit higher on offset mortgage products, given the potential savings that can be made. However, it’s still possible to secure a competitive rate if you search the market.
Speak to a Teito broker with experience in securing the best rates available for your circumstances. As well as competitive rates, we can ensure you find the most suitable deal for you and your family.
You can begin a free, no-obligation chat with a broker who can offer bespoke advice and compare the latest rates for you below:
Get bespoke advice about offset mortgages today
Which lenders offer family offset mortgages?
There are not a large number of family offset mortgage providers, but each have their own criteria, so it’s important to look at every option to find terms that suit your family’s needs.
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Barclays family offset mortgage - only allows immediate relatives to support the mortgage
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Yorkshire Building Society family offset mortgage - allows friend and relatives to link a maximum of 2 accounts
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Nationwide family offset mortgage - allows family members to use equity in their home instead of their savings to support an offset mortgage
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The Family Building Society - can be more flexible with their family offset mortgage criteria, but currently only offer offset mortgages to existing customers or those looking to borrow a further advance
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Halifax family offset mortgage - known as ‘family boost’ only holds money for 3 years, rather than the more common 5 years, when savings are used in lieu of a deposit, however, this option is only available to existing customers
To find the best deal for your family circumstances, it’s a good idea to speak to an expert mortgage advisor who is experienced in securing family offset mortgages. At Teito, we can help you to access all family offset mortgages on the market.
Why choose Teito for your offset mortgage?
Securing the best family offset mortgage can be challenging. There are a lot of calculations to compare how your money is best used to support your loved ones. Whether this is through a family offer, or perhaps providing a gifted deposit, or joint borrower sole proprietor mortgage are more suitable, at Teito we’ll guide you towards the most suitable decision for you and your family.
Other parents, grandparents, and supportive relatives chose Teito because:
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We can help you to compare the latest offset mortgage rates across the whole market
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We can provide expert advice from our team of mortgage brokers if you need help to choose your product
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Your initial consultation is always free of charge
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We are rated 5 stars across multiple trusted review platforms
Ready to take advantage of a free, no-obligation chat with a broker who specialises in family offset mortgages? Get started here.
FAQs
The biggest benefit can be helping your loved ones get onto the property ladder, a fate which is becoming particularly elusive to this generation of homebuyers. However, for those high-earners and high-net-worth individuals, it can also have a tax advantage. While you won’t earn interest on the savings held in a family offset account, you also won’t pay tax on that element of your savings, which could potentially reduce your tax bill for a few years while you help out.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.