The first-time buyer deposit, which can be a minimum of 5%, together with the family savings must add up to 25% of the property value.
Principality will take a legal charge over the assisted first-time buyer savings account, paying 3.75% AER, fixed until 31 August 2015. The family member will not be allowed access to their money during this time.
After 31 August 2015, if through a combination of mortgage repayments and house price rises, the mortgage has reduced from 95% LTV to 90% LTV, the legal charge on the savings account will be lifted, allowing the family member access to their savings.
The deal is extended to any family member or friend that wishes to act as the investor.
Christopher Johnson, mortgage manager at Principality, said: “Parents have become a valuable source of help for first-time buyers in a lending climate that demands much higher deposits.
“While it is clear that parents are willing to undertake acts of extraordinary generosity to help provide a secure future for their children, there are some drawbacks to gifting a deposit.
Johnson stated that many parents who lend their children deposits would not recoup their money until the house is sold in the future.
“The advantage of allowing parents to use their savings as security for the mortgage is that they retain ownership of their money,” added Johnson.
“They will continue to earn interest on their savings, while the child gets access to mortgage rates usually available to those with a larger deposit.”
