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Family Offset Mortgages

This new form of mortgage, designed to help first-time buyers into the housing market, has failed to catch the attention of the house buying public, which is leading some mortgage lenders to stop offering them altogether.

Family offset mortgages are an extension to the popular regular offset mortgages, which use the borrower’s savings in order to effectively reduce the amount of outstanding mortgage – the borrower forgoes earning any interest on their savings, but reduces the interest that they pay on their mortgage, and as repayment rates are higher than savings rates this saves the borrower money.

The family variation works on the same principle, except it allows people other than the borrower to put their savings up for use as the offset amount. By putting their savings into the mortgage, the family member can help the borrower to raise the deposit and will also lessen the amount of interest that is charged – this can make the mortgage affordable and ultimately allow the person to get on the property ladder. The only downside is that the family member(s) putting money into the mortgage will be foregoing any interest that they could have earned had it been in a savings account.

In general the idea of this type of mortgage is sound – it allows family members such as parents and grandparents who have spare cash to help their first-time buyer relation to get a foothold on the property market with a mortgage that is affordable to them. So why then, with so many first-time buyers finding it hard to afford a mortgage, has this scheme failed to pull in the customers?

One reason may be the lack of promotion, which is compounded by the confusing nature of the family offset mortgage. Understanding exactly how the mortgage works can be taxing, as there are limits on who can put forward the money and what kind of access they have to that money (some of the schemes have set loan to value ratios that have to be maintained). Combine this with the task of the borrower actually finding a relative willing to put forward the money, and getting them to understand what they are signing up to, and it begins to become clear why more people haven’t gone down this route.

For those who are looking to buy their first house, and who have relatives who would be willing to forego interest on their savings in order to help, then the family offset mortgage can be a very useful product in providing an affordable mortgage to the borrower.

While the family offset may not be a popular choice, having a family member help out with a mortgage certainly is. A large number of first-time buyers get a parent or grandparent to act as a guarantor on the mortgage in order to increase the amount that they can borrow, so giving them the funds they need to make a house purchase.