Family springboard mortgage vs guarantor mortgage

Trying to buy your first property can be difficult. Despite market fluctuations prices continue to rise faster than wages. In short, it’s becoming increasingly difficult to save a big enough deposit to qualify for your first mortgage.

Fortunately, there are other options. Two which appear to be growing in popularity are family springboard mortgages and the guarantor mortgage. We’re going to take a look at what they are and the main advantages and disadvantages of both.

Understanding family springboard mortgages

The family springboard mortgage allows a family member to help you get on the property ladder. If your loved one has a small pot of funds they can put this down as collateral against your mortgage. They don’t give you the funds.

You take a standard mortgage out with the lender and your loved one’s funds are held in a savings account with the lender.  The funds will be held for a set period, usually five years. At the end of this time, provided you’ve not defaulted on your payments, the funds are returned to your loved one and you have enough equity in your home that you can get a standard mortgage by yourself.

The role of guarantors in home loans

The guarantor mortgage is similar. However, in this instance, your close family member will agree to stand as guarantor for your mortgage loan. They will have to secure your mortgage against their own home or existing savings. If you default, your guarantor must pay the mortgage payment.  Several mortgage companies offer 100% mortgages if you have a guarantor mortgage. It’s worth talking to mortgage advisers before committing to any mortgage.

Comparing family springboard vs. guarantor mortgages

At first glance, especially to first-time buyers, guarantor and family springboard mortgages seem very similar. The main difference is that the springboard mortgage ties your loved one’s funds into a bank account for five years. They won’t be able to access it. In contrast, the guarantor mortgage may be secured against your loved one’s property or savings, but they are still free to spend their savings.

Of course, if you fail to pay the mortgage, a family springboard means your loved one loses their savings. In contrast, a guarantor mortgage could end up paying your mortgage for you or, if the property is sold for a loss, they could end up needing to raise a lot of capital to cover it. In some cases, this can mean them losing their own home.

Eligibility criteria for borrowers and guarantors

Family springboard mortgages are assessed in much the same way as a standard mortgage. The lender will want to review your credit history, income, expenditures, debts, and anything else that may be relevant. All they will need from your family member is the funds in a savings account.

In contrast, a guarantor mortgage will still want to run the same checks on income, expenditure, debts, and check your credit history. However, they will also want to see proof of your loved one’s status. They need to own their own home, have at least 30% equity in it, and be over 18 with a good credit score and a stable income.

Pros and cons of family springboard mortgages

The main benefits are:

• Fast-track to property ownership
• No complicated ownership details
• Loved ones can help you without parting with their savings forever
• Your loved one can earn interest on their locked-away savings

However, if you default your loved one can lose their savings.

Pros and cons of guarantor mortgages

There are several benefits to guarantor mortgages:

• Small or non-existent deposit
• Qualify for a mortgage even on a low-income
• Acceptable even with a poor or little credit history

Of course, the big downside is that, if you default, your loved one is liable and could even end up losing the property they put up as security against your mortgage.

Making the right choice for your family

If your long-term goal is to own property then buying as soon as possible seems like a good idea. However, five years is a long time and your situation can change. Think carefully about what you want from life and whether being tied to a specific property will make this an issue.

Equally, you need to be certain that you can afford the monthly payments. Defaulting will cause a huge strain on your relationship with ylour loved one.

Are you ready to discuss the best option for you?

Family springboard mortgages and guarantor mortgages can be a good way to get onto the property ladder. However, there are several other viable help to buy schemes. Contact us today to arrange a consultation and choose the right path for you.