The homebuyer borrows 100% of the purchase price of their property with a Vernon Building Society mortgage. The helper (a close relative) deposits an amount equivalent to 20% of the purchase price which is held in a savings account in their own name. This money is legally ‘charged’ to the Vernon for 4 years meaning that no withdrawals can be made during this period. After 4 years the savings are available for the helper to withdraw provided that mortgage payments have been satisfactorily maintained. If they haven’t then we may hold the cash for longer than 4 years (see ‘Frequently Asked Questions for Helpers’).
If the homebuyer has a deposit, the savings requirement from the helper reduces. For example, if a homebuyer had a 5% deposit then the helper would only need to provide 15% in savings. The total amount of deposit and savings must equal 20% of the purchase price.
The helper does not earn interest on these savings. Instead the savings amount is offset against the outstanding mortgage balance meaning that less interest is charged to the homebuyer. Because the mortgage payments are calculated on the entire loan amount outstanding, the reduction in mortgage interest means there is a small overpayment each month which leads to a faster reduction in the mortgage balance. Instead of this reducing the term of the mortgage, the repayments are adjusted to take the lower balance into account each time there is an interest rate change - so future payments will be lower than they otherwise would have been.
For example, on a property with a purchase price of £100,000 the Family Assist Mortgage would work as follows:
Benefits of a Family Assist Mortgage
- It allows the borrower to borrow 100% of the property’s purchase price
- The helper’s money stays in their name and will available to withdraw after 4 years providing that all mortgage payments have been made.
- The savings are offset against the outstanding mortgage balance reducing the interest charged.
- Unlike a guarantor, the helper would not be liable for any losses over and above the amount of the savings.
Risks to the helper
- Savings may not be released after 4 years if mortgage payments have not been satisfactorily maintained.
- Savings could be used to cover losses incurred by the Society in the event of repossession where the amount obtained from the sale of the house is not sufficient to repay the amount owing.
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