Intergenerational mortgage market grows by 40% in 2 years

29 July 2019

There are 40% more security deposit mortgages available on the market now than 2 years ago (28 compared with 20)

The intergenerational mortgage market has grown significantly in recent years and now offers some of the most competitive interest rates, according to new research by Defaqto, the financial information business.

There are 28 intergenerational mortgage products available on the market today; 13 providers now offer some form of security deposit mortgage, compared to 8 providers two years ago. Intergenerational mortgages are where one person, usually a parent or relative, offers a guarantee to help a borrower get a mortgage.

Traditionally ‘guarantor’ mortgages have been the most popular; this is where the parent or person guaranteeing the mortgage promises to pay back the loan if the borrower cannot. However, ‘security deposit’ mortgages available offer the parent or guarantor a less risky way to help the borrower afford a home and, in some cases, profit from it too.

With a security deposit mortgage, the friend or family member helping (helper) only guarantees the deposit or a set amount and is not liable for the whole mortgage. For example, they could guarantee £20,000 for a 10% deposit on a property worth £200,000. If the borrower does not keep up the mortgage repayments and the debt is called in, the family member is only liable for the £20,000 deposit and not the remaining £180,000 loan.

There are three types of security deposit mortgage available on the market:

Collateral charge

This is where the helper gives a charge over some of the value of their home to provide security for the mortgage. For example, they could guarantee £20,000 against the value of their own home, without having to pay anything.

Linked savings deposit

This is where the helper has savings equivalent to the value of the deposit, e.g. £20,000 and is willing to tie these up as security for the mortgage. The helper would deposit their savings with the mortgage lender and would still receive interest on the deposit for a fixed period at the start of the mortgage (typically 3 to 5 years).

Offset savings deposit

These are similar to linked savings deposit mortgages, except here the interest earned on the savings is used to offset the mortgage interest. The helper would receive no interest on their cash and the borrower would benefit from a lower interest rate.

Analysis of all the mortgage products on the market shows that the mortgage interest rates available on intergenerational mortgages are now some of the best available on the market for first time buyers.

Best 5 Year Fixed Rates for First Time Buyers

Security Deposit mortgages:

Provider

Product

Initial Rate Payable

Total Application Fees Payable (£)

Barclays

5yr 2.75% Fixed LTV 95% Family Springboard

2.75%

0

Cumberland

5yr 2.81% Fixed LTV 95% Family Mortgage*

2.81%

£49

Saffron Building Society

5yr 2.97% Fixed LTV 95% Family Support

2.97%

£180

The Family Building Society

5yr 3.09% Fixed LTV 95% Family Mortgage

3.09%

£599

Mansfield

5yr 3.89% Fixed LTV 100% Family Assist

3.89%

£199

* Local area of Cumbria only

 Mainstream mortgages:

Provider

Product

Initial Rate Payable

Total Application Fees Payable (£)

Ipswich Building Society

5yr 2.99% Fixed LTV 95%

2.99%

£499

Monmouthshire Building Society

5yr 3.08% Fixed LTV 95%

3.08%

0

Newcastle Building Society

5yr 3.09% Fixed LTV 95%

3.09%

£498

TSB

5yr 3.09% Fixed LTV 95%

3.09%

£995

Leek United

5yr 3.10% Fixed LTV 95%

3.10%

0

With Linked Savings Deposit mortgages, where the helper still receives interest on their savings throughout the mortgage, these offer comparable interest rates to mainstream savings products available today. For those who have the cash and can afford to tie it up for a period of time (typically 3-5 years but can be longer), they can also benefit from it too.

Best 3 Year Savings accounts

Linked Savings deposit accounts:

Provider

Product

Interest Rate AER

Lloyds

Lend a Hand Fixed Savings Account

2.50%

Barclays

Helpful Start Account (funds held for 5 years)

2.27%*

Progressive BS

Family Assist Savings Account

1.00%*

* variable rate of interest

3 Year Fixed Savings accounts

Provider

Product

Interest Rate AER

Arbuthnot Direct

3 Year Fixed Term Deposit

2.32%

Raisin UK

FCMB Bank - 3 Year Fixed Term Deposit

2.30%

Zenith Bank

3 Year Fixed Term Deposit

2.30%

 Katie Brain, Insight Analyst at Defaqto, comments:

“With property prices so high, some young people are having to turn to family in order to get their first home. Not many people have the cash to put down a deposit for a relative’s home and security deposit mortgages can be a good alternative for them. The security provided via collateral charge or linked savings deposit only has to be committed for a fairly short period of time, typically 3-5 years, this can be released once the lender is satisfied that the borrower is able to keep up with the mortgage repayments. 

“No security deposit mortgage is without risk and anyone who is considering helping out a borrower by providing security for the mortgage should get legal advice to ensure they fully understand what they are committing too. With traditional guarantor mortgages, the guarantor will be credit checked and their income taken into account for the first time buyer’s mortgage and it will need to cover the total loan amount. It’s important that borrowers read and compare the terms and conditions of these products because they do vary.”

Data sourced from Defaqto Matrix Database on 26th July 2019

ENDS/

Contact information

Newgate: Vanessa Chance / Simone Fassom, Defaqto@newgatecomms.com / 020 3757 6870

Defaqto: pressoffice@defaqto.com

About Defaqto:

Defaqto is a financial information business, helping financial institutions and consumers make better informed decisions.

Our independent fund and product information helps banks, insurers and fund managers with designing and promoting their propositions. We analyse around 43,000 financial products in the UK. These products change on a daily basis, and our customers need help with keeping track of this.

We have been doing this for over 25 years, and have over 60 analysts spending 400 hours a day monitoring the market. They ensure that the information we provide is accurate and up to date. Our experts have done all the hard work so that financial institutions and consumers can make better informed decisions.

 Access further information about Defaqto at defaqto.com

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