What is a Springboard Mortgage and how do they work?

We all need a little help from family and friends from time to time and that’s never been more true for first-time buyers than now.

Every few months house prices seem to reach another record high - but there is help. Realising that homeownership is unaffordable for many, especially with mortgage rates on the rise again, some lenders offer home loans that allow family and friends to help you on the property ladder - springboard mortgages.

What is a Springboard Mortgage?

A family springboard mortgage, also known as a family guarantor or Savings as Security mortgage, allows first-time buyers to purchase a home without any deposit - which essentially allows you to borrow up to 100% of a property's value.

Depending on the lender you choose, your loved one can either offer their savings or a chunk of their property equity as security for your mortgage. By doing so, your lender knows that if you’re unable to pay your mortgage there is a safety net in place to help you.

Family or friends, known as ‘helpers’ or guarantors, must deposit 10% of the property purchase price into a savings account held by the lender for a fixed period, normally five years. First-time buyers must then choose a five-year fixed-rate mortgage, which means both you and your loved one are tied to the springboard mortgage for five years. During this time, your loved ones earn interest on their savings, but they cannot deposit or withdraw money from the account until it is released.

What are the pros and cons of a springboard mortgage?

With a springboard mortgage, first-time buyers can get on the property ladder without waiting years to save for a deposit, allowing them to buy a property and start building up equity sooner. And where the lender offers the option of a guarantor tying a savings account to the mortgage, family members are often offered a higher rate of interest than available on the open market.

However, its important to note that springboard mortgages can also result in buyers being charged a higher rate of interest than a 'typical' first-time buyer who uses a standard mortgage to purchase a home. This is because you’re not putting down your own deposit, so you’re considered a higher risk to the bank.

There is also the risk that if you do not keep up to date with your monthly mortgage payments, your helper/guarantor will not get their savings back until you have caught up - with the potential that banks can also use some of your loved one’s savings to pay your arrears.

As the homeowner, you’re at risk too. By not putting down a deposit you could fall into negative equity if house prices go down. Negative equity means your home is worth less than the value of your mortgage. Moreover, springboard mortgages can sometimes be capped at a property value of £500,000 or restrict you to choosing between just a few long-term fixed-rate deals. 

How to apply for a springboard mortgage

If you think that a springboard mortgage might be a good fit for your financial situation, there are a couple of steps you'll need to take. Firstly, its important to talk to your potential support/guarantor to see if they are in a position to help you with your mortgage - and make clear the financial commitment they would need to agree to for a springboard mortgage.

Once you've had the conversation with your loved one - its time to find an expert mortgage broker. Springboard mortgages can be complicated as they require multiple applicants and a complex financial agreement. You also want to make sure that you're getting the best (and most affordable) deal possible with the right lender, and an expert mortgage broker can help with that.

Once you've found the right deal for you, its time to apply for your mortgage. You can prefer for this by preparing all the relevant documents - such as bank statements, proof of ID, credit reports and proof of address etc. This process might be a bit more complicated than if you were applying for a standard mortgage, but with the right mortgage broker, it can be a lot easier.

What are the alternatives to springboard mortgages?

If you only have a small deposit or no deposit at all, there are alternatives to family springboard mortgages. 

Most mortgage lenders will offer you a mortgage even if 100% of your deposit has been gifted to you. They will investigate the circumstances of the gift to check for money laundering flags and to make sure you haven’t borrowed the money from another lender. If the person making the gift wants their money back in the future, they can ask a solicitor to place a legal restriction on your home so that when you sell it they can get their money back.

If you don’t have a deposit or a loved one who can contribute their own savings, your loved ones could use a Deposit Boost to help with your deposit. They'll use a small mortgage to unlock money from their money, which you can then use as all of your down payment, or to top up your own deposit savings.

Finally, you could consider an Income Boost mortgage. Instead of putting up their savings as a guarantee, like with a springboard, your guarantor agrees to step in and pay the mortgage if you’re not able to. Their income is also added to yours when calculating your maximum borrowing potential, helping you to get a bigger mortgage loan.

Find out more: Alternative ways to get on the ladder