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Family Offset Mortgages: Are They A Good Way To Help My Kids Get On The Property Ladder?

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Many parents want to help their children get on the property ladder, but they often assume there is nothing they can do if they don’t have a substantial lump sum to pass over.

However, that isn’t actually the case. At Properly, we often advise clients who are searching for property solutions for their children, and one of the options we recommend is a family offset mortgage.

Family Offset Mortgages – What Are They?

A family offset mortgage is one of the types of offset mortgage on the market today. All kinds of offset mortgage work by offsetting savings against the home loan to reduce its total amount and, thus, reducing how much interest is paid overall.

There are three key points to note when it comes to family offset mortgages:

  • The total capital repayments stay the same, but the amount that interest is charged will reduce.
  • The linked accounts won’t earn interest.
  • A family offset mortgage may not have as competitive an interest rate as a standard mortgage.

Bearing these three points in mind, it’s important to work out the advantages and disadvantages before going for this option.

How Much Do I Need To Have In My Savings Account To Apply For A Family Offset Mortgage?

All lenders have their individual criteria when it comes to applying for a family offset mortgage, but in general, you’ll need around 10% of the property’s purchase price. With some lenders, the levels will be significantly higher. There may also be extra stipulations, for example, a minimum yearly income.

Can I Make A Family Offset Mortgage Application?

If you have sufficient savings, there are some other considerations to keep in mind when determining whether you can make a family offset mortgage application. Approval will depend on your credit history, debt-to-income ratio, and even purchased property type.

Does Every Lender Offer Family Offset Mortgages?

Some lenders specialise in this form of an offset mortgage, but many of the big-name lenders don’t. Other lenders provide them, albeit under a different name. If you’re thinking of getting a mortgage like this, you should get professional guidance first.

Should I Opt For A Family Offset Mortgage?

There are a number of advantages to applying for a family offset mortgage as a way of helping your child buy a property. They include:

  • Less interest will be paid overall.
  • There is more flexibility so the mortgage duration could be shorter or lower amounts could be paid each month.
  • Most family offset mortgages accept overpayments.
  • If you’re a higher-rate taxpayer, this mortgage could potentially benefit you.
  • Your savings can still be accessed.

On the downside though:

  • You’ll receive no interest on your savings.
  • The interest rate will likely be higher.
  • You will be restricted to only a few lenders.
  • The terms may not be especially attractive.
  • The LTV ratio may be prohibitive.
  • You may not have enough savings to make it worth your while.

With all of this in mind, it’s easy to see why talking to a mortgage professional is so important. However, once you’ve made your decision, or if you need advice about finding a suitable property for your child to help them onto the property ladder in London, don’t hesitate to call our team at Properly a call on 0207 459 4400.