It is quite rare that a new building society is launched in the UK, but 13th July 2014 saw that very event take place when the Family Building Society was launched. It was the first time in more than 30 years that the market has seen a new building society enter the fray. The last time it happened was in 1981, when the Ecology Building Society opened for business.
Although the building society is providing a wide range of products, the one that has attracted the most interest is their so-called family mortgage. It is being advertised as a revolutionary type of home loan that could see more young people being able to buy their own home.
How does the family mortgage work?
The idea is that relatives of the person who wants a mortgage – most commonly parents and perhaps even grandparents – can pool their resources together to provide security for the mortgage wanted. They don’t have to find the actual money: it simply has to be available in the form of savings or property in order to support the loan application. Alternatively the relatives can open a savings account and deposit an amount of money to act as security against the new loan.
As such it is a more financially appealing route for parents and grandparents to take. They don’t have to part with cash they might need later on for other purposes, particularly where retirement is concerned.
It is also more appealing for the person who wants to get a mortgage. You could apply for one that has the backing of both your parents and your grandparents – and have a much better chance of being accepted for it too.
Low deposit makes finding the money easier for the person buying
The biggest barrier for many people who want a mortgage is undoubtedly finding enough cash to put down as a deposit. With some banks and building societies wanting 10% to 20% for a deposit, this can soon put the price of owning your own home well out of reach. A 20% deposit on a £180,000 property, for example, would be an eye-watering £36,000. In comparison the same value property bought with a mortgage provided by the Family Building Society would need a 5% deposit of £9,000. This is still a significant sum but it is far more affordable and more within reach for many people.
Could this revolutionise the UK mortgage industry?
The family mortgage offered by the brand new Family Building Society is not the first of its kind in the UK. The Woolwich offers a Family Springboard mortgage which runs along the same lines.
However there are clear signs here that the mortgage industry is thinking more creatively in terms of making home ownership a better possibility for those looking to get onto the ladder for the first time. It will be intriguing to see how many families take this new building society up on their new mortgage product.