Imagine trying to buy your first home when the average house costs around 7.7 times your annual salary.
For many young Britons, that means scraping together over £60,000 for a deposit on a starter home.
It’s no surprise that more than half of first-time buyers now get financial help from their parents or relatives, often dubbed the “Bank of Mum and Dad“, with an average family contribution exceeding £55,000.
Families across the UK are finding creative ways to bridge this gap and help the next generation become homeowners. One solution gaining attention is the family offset mortgage.
This setup allows parents or grandparents to support first-time buyers not by gifting money outright, but by temporarily leveraging their savings to reduce the buyer’s mortgage costs.
Below, we break down exactly what a family offset mortgage is, how it works, and whether it might be the right path for you.
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What Is a Family Offset Mortgage?
A family offset mortgage is a type of mortgage that links a relative’s savings account to a homebuyer’s mortgage to reduce the amount of interest the homebuyer pays. In a standard offset mortgage, your own savings offset your loan.
With a family offset, it’s the parents’ or family members’ savings that get linked to your mortgage.
Essentially, a family member acts like a guarantor by placing their savings in a special linked account (called a “savings as security” or springboard account) instead of gifting you the cash outright.
This doesn’t pay down the mortgage debt directly, but it offsets the loan for interest calculations.
Example:
Let’s say you’ve saved a £50,000 deposit and need a £200,000 mortgage to buy your first home. Your parents also have £50,000 in savings.
With a family offset mortgage, the bank would link your parents’ £50k savings to your loan, so you only pay interest on £150,000 of the mortgage (i.e., £200k minus the £50k offset).
In effect, your parents’ savings shrink the interest-bearing portion of your loan, lowering your monthly payments.
Importantly, the savings aren’t spent – they remain your family’s money, just held by the lender as security or offset, and often can be returned to them after a certain period or once you’ve paid down enough of the loan.
How Does a Family Offset Mortgage Work?
A family offset mortgage works in a similar way to a normal offset mortgage, but with your relative’s savings doing the work. Here’s how it generally operates:
Linked savings account
Your family member (often a parent or grandparent) places money into a designated offset savings account with the mortgage lender.
This account is linked to your mortgage. The family member typically earns no interest on these savings while they’re offsetting your loan, but in return, you get to pay less interest on your mortgage debt.
Interest on the reduced balance
The lender subtracts the balance of that savings account from your outstanding mortgage when calculating interest.
For example, if you owe £180,000 on your mortgage and your mum has £30,000 in the linked account, you will only be charged interest on £150,000 of the loan.
This can significantly reduce your monthly mortgage payments or help you pay off the loan faster, because less of your debt is accruing interest.
No access to savings (temporarily)
Depending on the mortgage deal, the family’s money may be locked in for a set period (e.g., three to five years) as a form of security for the lender.
In some family offset setups (often called springboard mortgages), the savings must stay put until you have paid down a certain amount of the mortgage or until a fixed term ends.
In others (more like a traditional offset), the family might be able to withdraw funds sooner, but doing so could increase your mortgage payments or end the offset benefit. Always check the specific product’s rules.
Getting the money back
If all goes well, you keep up with repayments, the family member will get their full savings back at the end of the agreed term or once the mortgage balance has reduced to a certain level.
This is a key advantage: the supporter eventually recoups their money (unlike a gifted deposit, which is gone).
However, if you default on the mortgage, the lender may have the right to use those savings (or keep them locked in longer) to cover missed payments.
Pros and Cons of a Family Offset Mortgage
Like any mortgage setup, family offset mortgages come with their advantages and disadvantages.
Pros
- Smaller deposit needed: Use a family member’s savings to help you borrow more, or even potentially 100% of the purchase price, without them gifting cash outright.
- Lower interest costs: You only pay interest on the loan balance minus the offset savings, cutting your monthly payments and total interest.
- Tax-efficient savings: The family’s savings earn no interest (so there’s nothing taxable), while you benefit from reduced mortgage interest which may be suitable for some circumstances.
- Savings returned: Unlike a deposit gift, the supporter’s money is held temporarily and repaid to them at term end.
- Built-in discipline: Locked-in savings can’t be spent elsewhere, ensuring funds stay available for your mortgage.
Cons
- No interest on savings: The helper forgoes any return on their funds while they offset your mortgage.
- Funds locked away: Savings may be inaccessible for years, limiting the family’s financial flexibility.
- Premium mortgage rates: Offset mortgages often carry rates higher than standard deals.
- Risk to savings: If you miss payments, the lender can keep or use the offset savings to cover arrears.
- No reduction in loan principal: You still owe the full mortgage amount; offset savings only lower interest, not the debt.
Alternatives to Family Offset Mortgages
Family offset mortgages are just one way families can assist new buyers. Depending on your situation, there may be simpler or more suitable routes to consider. Here are a couple of common alternatives to a family offset mortgage:
Joint Borrower, Sole Proprietor (JBSP) mortgages
A Joint Borrower Sole Proprietor (JBSP) mortgage is another family-assisted route, useful when your income alone isn’t enough to qualify for a mortgage.
With a JBSP mortgage, a parent (or another person) is added as a joint borrower on the mortgage, but they do not appear on the property deeds; you remain the sole owner.
The joint borrowers’ income is taken into account by the lender, which can greatly increase how much you’re able to borrow.
Essentially, the bank sees that two people will be responsible for the payments, so they lend more, but only the child owns the home.
Where Can You Get a Family Offset Mortgage?
Family offset mortgages are a niche product, and not many lenders offer them compared to standard mortgages.
Instead, you can talk with a mortgage advisor we work with to discuss your situation and get the right information. Get started.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
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