What is a Springboard Mortgage and how do they work?

Key takeaways

• 0% deposit: Springboard mortgages allow first-time buyers to get a home without a personal deposit.
• Family security: A "helper" (family or friend) provides 10% of the property price as security, usually held in a savings account for 5 years.
• Interest benefits: Helpers typically earn interest on their locked savings during the term.
• Risk factors: Buyers may face higher interest rates and the risk of negative equity if house prices fall.
• Alternatives: Options like Deposit Boosts or Income Boosts are available if a springboard mortgage isn't the right fit.

What is a springboard, or Savings as Security mortgage?

We all need a little help from family and friends from time to time and that's never been more true for first-time buyers than now.

Every few months house prices seem to reach another record high - but there is help. Realising that homeownership is unaffordable for many, especially with mortgage rates on the rise again, some lenders offer home loans that allow family and friends to help you on the property ladder - springboard mortgages.

A family springboard mortgage, also known as a family guarantor or Savings as Security mortgage, allows first-time buyers to purchase a home without any deposit, which essentially means borrowing up to 100% of a property's value. It's called a 'springboard' mortgage because a loved one's financial support helps the buyer 'spring' onto the property ladder. Different lenders may use different names for this type of product, including family deposit mortgage, family assist mortgage or family boost mortgage, but the core concept is the same.

Depending on the lender you choose, your loved one can either offer their savings or a chunk of their property equity as security for your mortgage. By doing so, your lender knows that if you're unable to pay your mortgage there is a safety net in place to help you.

Family or friends, known as 'helpers' or guarantors, must deposit 10% of the property purchase price into a savings account held by the lender for a fixed period, normally five years. You then takes out a five-year fixed-rate mortgage, which means both parties are tied to the springboard arrangement for the same duration.

During this time, the helper earns interest on their savings, but they cannot deposit or withdraw money from the account until it is released at the end of the term. It's also worth noting that with some lenders, helpers can open multiple accounts, meaning they could support more than one family member or friend in getting onto the property ladder.

With any family springboard mortgage, family and friends must seek independent legal advice before the mortgage completes. This is so the lender can be sure that all parties are entering into the agreement understanding their responsibilities and without undue pressure,

What are the pros and cons of a springboard mortgage?

Pros of a springboard mortgage:

• No deposit needed from the buyer - first-time buyers can get on the property ladder without waiting years to save, allowing them to start building equity sooner.
• Helpers earn interest on their savings - where the lender ties the helper's savings account to the mortgage, they're often offered a higher rate of interest than what's available on the open market.
• Longer mortgage terms may be available - some lenders allow borrowers to spread repayments over up to 35 years, making monthly payments more manageable.

Cons of a springboard mortgage:

• Higher mortgage interest rates for the buyer - because no personal deposit is being put down, the lender considers the buyer a higher risk, which can mean a pricier rate compared to a standard mortgage.
• Risk to the helper's savings - if the buyer falls behind on repayments, the helper won't get their savings back until the arrears are cleared. In the worst case, the lender could use some or all of the helper's savings to cover the missed payments.
• Negative equity risk - without a personal deposit acting as a buffer, a drop in house prices could leave the buyer owing more than the property is worth.
• Product restrictions - springboard mortgages can sometimes be capped at a property value of £500,000 and may limit the buyer to just a few long-term fixed-rate deals.

How to apply for a springboard mortgage

1. Have an honest conversation with the helper - talk to the family member or friend who'd be putting up their savings as security. Make sure they understand the financial commitment involved and are comfortable with it before moving forward.
2. Speak to an expert mortgage broker - springboard mortgages involve multiple parties and a more complex financial agreement than a standard mortgage. An expert mortgage broker can search across the market to find the most affordable deal with the right lender for the situation.
3. Arrange independent legal advice for the helper - most lenders require that the helper seeks their own independent legal advice before the mortgage completes. This solicitor can't be the same one handling the property purchase, though they can be from the same firm.
4. Prepare the paperwork and apply - gather all the relevant documents, such as bank statements, proof of ID, credit reports and proof of address. With the right mortgage broker guiding the process, this can be much smoother than going it alone.

What are the alternatives to springboard mortgages?

If you only have a small deposit or no deposit at all, there are alternatives to family springboard mortgages.

Gifted deposits are one of the most common ways families help each other onto the property ladder - in fact, research shows that almost half of under-35s who recently bought a home received some form of financial help from family. Most mortgage lenders will accept a deposit that has been fully gifted, though they'll investigate the circumstances of the gift to check for money laundering flags and to confirm the money hasn't been borrowed from another lender. If the person making the gift wants their money back in the future, a solicitor can place a legal restriction on your home so that when you sell it they can get their money back.

If you don't have a deposit or a loved one who can contribute their own savings, your loved ones could use a Deposit Boost to help with your deposit. They'll use a small mortgage to unlock money from their money, which you can then use as all of your down payment, or to top up your own deposit savings.

Finally, there's the Income Boost mortgage. Rather than tying up savings as security, a family member agrees to step in and cover mortgage payments if you're unable to. Their income is also added to yours when the lender calculates maximum borrowing, which can help secure a larger mortgage loan.

Find out more: Alternative ways to get on the ladder