Vernon Building Society has developed a new mortgage that allows customers to borrow up to 100 per cent of the property price provided a relative is able to deposit savings equivalent to 20 per cent of the property value.
No interest is paid on the savings although the savings are offset against the mortgage balance, therefore reducing the amount of interest paid by the borrower.
For example, if a borrower took out a 100 per cent LTV loan worth £100,000, a relative would have to deposit £20,000 in savings with the building society.
However, while the mortgage payments are based on the entire loan the borrower only pays interest on the difference between the loan and the savings – £80,000 – over the four years. The relative can opt to link their savings to the loan for longer than four years, like a traditional offset mortgage.
After four years the savings will be returned to the relative as long as all of the mortgage payments have been met. If not, then the building society says it can hold onto the savings for longer than four years.
The savings will not be used to pay any arrears, although in the event of repossession they can be used to make up any shortfall.
The four-year discount product, called the family assist mortgage, has a rate of 3.55 per cent, which then reverts to the lender’s standard variable rate, currently 5.1 per cent.
There is a maximum loan size of £200,000 and a £199 fee is payable on application. The valuation fee will be refunded on completion and the society will pay £200 towards solicitor’s fees on completion.
The product is available to borrowers within a 25 mile radius of Stockport.
Vernon head of sales and marketing Ian Keeling says: “We understand that saving for a deposit can be difficult with many first time buyers requiring support from family members to take their first step onto the housing ladder.
“We’re offering an alternative to the traditional gifted deposit with our family assist mortgage which allows family members to link their savings to their relative’s mortgage without handing over the cash directly.”
How the family assist mortgage works: