New Combined Family Mortgage

New Combined Family Mortgage.

A new building society called the Family Building Society has launched its first major foray into the mortgage market with a family mortgage.

What is a Family Mortgage?

The Family Building Society has offered an innovative approach in that it has a specific mortgage product that allows family members to work together to buy property and importantly help younger people onto the property ladder.

Basic Features:

• First time buyer wants to buy a home but has a low deposit
• Family member can offer security in a combined account for example depositing a savings amount with the Family Building Society – the savings account will add interest
• This means the family member does not have to offer a “financial gift” to the home buyer – this has both access to capital, security and indeed inheritance tax implications
• The first time buyer will then have access to lower mortgage rates as the risk to the lender is lowered as there are larger “cash deposits” with the society
• A family can, if they wish, pool their property into the account, and a charge be placed on their home to act as the deposit money rather than putting in cash
• Again, where another property is offered as security, interest rates for the property purchaser will be lower

Family Offset Account

• Another option is a combined family offset account.
• The family member offers up their cash savings but receives no interest.
• The offset account is usually for a maximum of 10 years
• Again, the first time buyer benefits from lower interest charged on their mortgage as a greater proportion is held on deposit being offset against the mortgage.

Comment

It is nice to see innovation in the mortgage market.

The saver/investment option and charge option provides an opportunity for family members to help younger family members onto the property ladder. We suggest it may have repercussions in the care fees means testing area, so tread carefully.

The offset against provides opportunities for higher tax payers to use their savings in a different way to help family members and this no receive interest that they would then be taxed on at 40%/45%.

We believe HMRC could see this as an “indirect gift” of interest but assuming it remains below the £3,000 annual gifting allowance, it looks good for estate planning as well as helping loved ones onto the property market. If we were to recommend this product, we would seek clarification form HMRC first.

That said, all in all, an interesting new proposition for families when helping younger members to buy property. Well done Family Building Society.