What is a Springboard Mortgage and how do they work?
A family springboard mortgage allows first-time buyers to buy a home without any deposit. Here at Tembo, we call this a Savings as Security mortgage. But what is a springboard mortgage and how do they work? Keep reading to find out
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 truer 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, despite the re-introduction of 95% mortgages, some lenders offer home loans that allow family and friends to help you on the property ladder - springboard mortgages.
What is a Springboard Mortgage?
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. Depending on the lender you choose, your family member or friend either has to 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. First-time buyers must then choose a five-year fixed-rate mortgage, which means both you and your loved one are tied to the springboard mortgage for five years. During this time, your loved ones earn interest on their savings, but they cannot deposit or withdraw money from the account until it is released.
Take note...
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 benefits of a springboard mortgage?
With a springboard mortgage, first-time buyers can get on the property ladder without waiting years to save for a deposit. And where the lender offers a savings account tied to the mortgage, family members are often offered a higher rate of interest than available on the open market.
See if you're eligible for a springboard mortgage
Create a free Tembo plan today to see if you're eligible for a springboard mortgage as well as other specialist buying schemes.
But there are some serious risks and considerations to keep in mind too:
What are the cons of a springboard mortgage?
- You’ll be charged a higher rate of interest than a first-time buyer who uses a standard mortgage to purchase a home. This is because you’re not putting down your own deposit, so you’re considered a higher risk to the bank.
- Your family or friends are putting their savings or their property at risk when they help you.
- If you do not keep up to date with your monthly mortgage payments your helper will not get their savings back until you have caught up. Banks can also use some of your loved one’s savings to pay your arrears.
- As the homeowner, you’re at risk too. By not putting down a deposit you could fall into negative equity if house prices go down. Negative equity means your home is worth less than the value of your mortgage.
- New-builds, shared ownership, and self-build homes are not usually allowed under these types of schemes.
- Maximum mortgages are sometimes capped at £500,000 and you’re restricted to choosing from just a few long-term fixed-rate deals.
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.
Most mortgage lenders will offer you a mortgage even if 100% of your deposit has been gifted to you. They will investigate the circumstances of the gift to check for money laundering flags and to make sure you haven’t borrowed the money from another lender. If the person making the gift wants their money back in the future, they can ask a solicitor to place a legal restriction on your home so that when you sell it they can get their money back.
If don’t have a deposit or a family member who can put forward 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, you could consider an Income Boost mortgage. Instead of putting up their savings as a guarantee, like with a springboard, your guarantor agrees to step in and pay the mortgage if you’re not able to. Their income is also added to yours when calculating your maximum borrowing potential, helping you to get a bigger mortgage loan.
Find out more: Alternative ways to get on the ladder
See what you could afford with Tembo
We've helped thousands of homebuyers discover how they could afford their dream home. By creating your own Tembo plan, you'll see all the buying schemes you're eligible for and how much you could afford with each. To see if you're eligible for a springboard mortgage as well as other guarantor schemes, create your free Tembo plan.
