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Is this the return of the 100% mortgage?

New Post Office mortgage lets first-timers buy a home without a deposit – so what's the catch?

The Post Office has launched a ‘Family Link’ mortgage which enables first-time buyers to get on the property ladder without putting down savings of their own.

If you’re hoping to buy your own home sooner rather than later, but are struggling to save up a deposit, could this be the answer to your prayers?

Below, we explain how this new type of 100% mortgage works, whether it’s a good deal, and what the alternatives are.

  • If you’re saving to buy your first home, Which? Mortgage Advisers can give you expert advice on the best mortgage options for you, including how much you can borrow. Call 0800 197 8461 for a free chat.

Post Office’s 100% mortgage

The fee-free Family Link mortgage works by combining a 90% mortgage with a 10% loan, which is secured against a parent or other close family member’s own home.

The downside is that the parent’s property must be owned outright, meaning the mortgage has been paid off in full. But on the plus side, the deal won’t cost the parent a penny as long as the buyer pays the loan off on time.

The 90% mortgage is charged at a five-year fixed rate of 4.98%, while the 10% loan is interest-free for the same period.

The most you can borrow is £500,000, and you need to be a first-time buyer to qualify for the deal. This also applies to your partner if you’re buying together.

You’ll also need to be able to prove that you earn at least £20,000 a year and that you can afford to keep up your monthly repayments.

If you miss any payments, then both your and your parent’s homes are at risk of repossession. So if you’re considering applying for this mortgage, it’s vital to first take legal advice.


Is the Family Link mortgage a good deal?

If you’re unable to save a deposit, and your parents are mortgage-free but can’t lend you cash, the Post Office’s Family Link mortgage could be an appealing option.

However, the 4.98% interest rate is expensive. If you applied for a regular 90% mortgage, and your parents took out a mortgage against their own home to provide you with a 10% deposit, this may work out cheaper for both of you.

As an example, if you were buying a property for £210,928 – which the Post Office says is the average price paid by a first-time buyer – then the lowest initial rate for a five-year fixed deal is currently 2.34% from Barclays (plus a £999 arrangement fee), according to Moneyfacts.

David Blake, Which? Mortgage Advisers spokesperson says: ‘The more choice that people have, the better, and for some people the Post Office deal may work well.

‘However, if you’re in the fortunate position of having parents who are able to help out, there are potentially cheaper ways of buying your first home without a deposit.’

How else can parents help first-time buyers?

The Post Office says the average millennial has £3,359 in accessible savings, meaning first-time buyers often ask their parents for help with a deposit.

Gifting cash towards a deposit is often the simplest option. But, of course, that’s not possible for everyone, so various mortgage products have been developed to help with this.

Joint or ‘First Start’ mortgage

A parent can apply for a joint mortgage together with their child, meaning both incomes are taken into account. This means the the first-time buyer is potentially more likely to be accepted and loaned a higher amount.

Traditionally, the parent’s name also would also go on the property deeds, but ‘First Start’ mortgages –currently offered by the Post Office and Bank of Ireland – allow you to choose whether or not this happens.

Guarantor mortgage

With a guarantor mortgage, a parent or close family member guarantees the mortgage debt. If the buyer misses their mortgage repayments, the guarantor will have to cover them.

Aldermore offers loans of up to 100% via guarantor mortgages.

Family offset mortgage

With family offset mortgages, a relative puts their savings into an account linked to the first-time buyer’s mortgage. The money in this account is then deducted from the mortgage, making the child’s repayments cheaper.

But there is a downside: while the relative can get their money back in full, they may have to lock it away until 75-80% of the mortgage has been paid off.

Family deposit mortgage

Here, a family member deposits cash in a savings account where the money is held as security against the mortgage. This cash is held for a fixed period of time, during which, if the mortgage borrower defaults, the money will be taken from this account.

The family member earns interest on their savings, although the rate might not be as good as with other accounts. And if the borrower meets all their repayments, it won’t cost their family anything.

What if your parents are unable to help you buy a home?

For many first-time buyers, getting help from their parents isn’t an option.

To get a mortgage without parental help, you’ll need a deposit of at least 5%, which will enable you to take out a 95% mortgage.

Alternatively, if you’re buying a new-build property, you could take out a Help to Buy equity loan where you put in 5%, the government lends you 20% (or 40% in London), and you take out a mortgage to cover the rest of the property price.

You may also be interested in shared ownership, where you buy a 25-75% share of the property and pay rent on the rest.

It’s worth taking legal advice before buying a home using Help to Buy or shared ownership, as both schemes come with complex terms and conditions.

What’s the best option?

As you can see, working out the best course of action is complex and the answer depends on a wide range of factors.

It’s worth talking to a whole-of-market mortgage broker who will be able to use their expertise to work out the most suitable option for you.

Fill out the form below to get a callback from Which? Mortgage Advisers, or call the friendly team for free on 0800 197 8461.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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