Get on the property ladder with a tiny deposit

'New' bank of Mum & Dad emerges


London's Rising House Prices

Sky-high house prices, especially in the South of England and London, mean home ownership is out of the question for many. But a new mutual, The Family Building Society, is giving grey hairs the chance to help younger members of the family, underwriting a mortgage several family members can contribute to.

How does it work - and should you consider it seriously?

Family fortunes

First, don't look for a high street branch. It's 'phone and internet only. The offer uses the family's overall savings and property assets as buyer security - but not as a gift - to offset risk (a few other building societies such a Market Harborough offer something similar) supplying a lower rate of interest on the loan.

Here's an example of how the offer works. Mark Jones, 55, earns a reasonable income as a teacher. His children are grown up and wants to help them buy a first home, but he doesn't have savings to spare for this.

Daughter Isabelle has saved £7,500, which is a 5% deposit toward buying the £150,000 flat she's chosen. So she wants to borrow £142,500. Mark can't spare any cash but he does own his property outright.

21st century mortgage

By using the family mortgage, Mark directs £30,000 of the value of his home as security for Isabelle's mortgage. By doing this he can help her a lower interest rate than she'd otherwise be able to get.

Assuming she keeps her mortgage up to date, the charge on Mark's property comes to an end after 10 years. However, during that time he's liable for £30,000 of any shortfall, if the flat has to be sold for less than the amount Isabelle owes on the mortgage.

The Family Building Society says the offsetting security can be as much as 30% LTV but 20% is normal. Worth considering?

It's a good idea in principle says Andrew Smith from mortgage brokers Insight Financial. "Anything that allows people to buy more easily is welcomed. It's a relatively simple idea. We have got this huge amount of equity tied up with older people."

Risks? "Obviously if the children don't pay the mortgage," he says. "Or if there is downsizing or moving pressure, or if the relationship breaks down." In other words, go slowly and read the small print carefully.