The Family Building Society launches this week, the first new building society in the UK since Ecology opened its doors in 1981. And it has immediately targeted the UK's mortgage market, with innovative new loans aimed at helping parents and other older relatives help their children to buy property.
Who is the Family Building Society?
The Family Building Society has been spun out of the National Counties Building Society, which has been trading since 1896, and offers its own financial services such as insurance and mortgages. It is based in Epsom, Surrey.
What it is doing differently
Family Building Society says it wants to deliver financial products which will help tackle modern issues like higher divorce rates, car insurance for young drivers and mounting university fees.
It is aiming its services primarily at parents who want to help their children become more independent without jeopardising their own future finances.
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Helping parents to help their kids buy a home
Hardly a week goes by without another new report telling us about the struggles young people have in getting on to the property ladder and how they’re renting for longer than ever. To try and move things along, Family BS has created a mortgage agreement which allows families to lend inter-generationally to lower costs.
The Family Mortgage is available to people with deposits as low as 5% of their chosen property’s value. Parents, grandparents and other close relatives can pull their finances together in order to guarantee the borrower’s mortgage and lower the interest rate. Family members have three options:
- Place money in an interest-paying savings account with Family BS as security
- Offer part of the equity of their home or a cash deposit as security
- Deposit savings in a family offset account. They don’t get interest, but can claim money back after 10 years.
[SPOTLIGHT]A combination of these options can also be used.
£250,000 is the average price of a house in the UK today, so that seems like a good figure to put in to context. With this plan, the borrower would put in £20,000 (5%) with relatives topping it up to £62,500 (25%) as security through either or all of the above routes.
This way, family members only cough up the cash if the borrower fails to keep up with repayments. Be warned, defaulting can put the family’s security payments at risk so consider this mortgage plan carefully.
Family Building Society says it will cover six months of repayments if the borrower is made unemployed and it wasn’t their fault.
Other lenders offer similar twists on guarantor mortgages, as we detail in Guarantor mortgages: how they work and where to get one
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Not just for young adults
Family Building Society also has mortgages for people who are dealing with life-changing events such as divorce or having a child.
For example, the ‘low start’ mortgage is designed for recent divorcees who want to move on to a new home. This mortgage starts with interest-only repayments for the first two years, with the interest being kept very low over the first six months, then increasing in months seven and 13. This helps borrowers to adjust to their new situation. Interest and capital start being paid at the start of year three with rates rising accordingly over the mortgage term.
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What do you think about this new building society? Is it filling a gap in the market? Let us know your thoughts in the comments box below
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