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Family offset mortgages

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 8, 2022

We’re getting more and more enquiries about Family Offset Mortgages, which have become a popular way for parents to help their children or other family members onto the property ladder.

To answer your questions on these products, we’ve put together this guide to family offset mortgages in the UK.

What is a family offset mortgage?

A family offset mortgage is a special class of offset mortgage that can be used to help family members get on to the housing ladder. Sometimes called a  ‘parent offset mortgage’, it is most commonly used by parents who want to help their children with a purchase, but the recipient can occasionally be any nominated family member.

As with a standard offset mortgage, this is achieved by linking a savings account to a mortgage, which has the effect of ‘offsetting’ the loan: in other words reducing the amount of interest due on it.

The main difference is that the mortgage in this case is held not by the owner of the savings account, but by their child(ren) or other nominated family member.

NB: for ease of reference, we will use the classic example of a parent and child taking out a family offset mortgage for the rest of this article.

How does a family offset mortgage work?

In a family offset mortgage, the total amount borrowed is reduced by the value of the parents’ savings. This has the effect of lowering the loan to value ratio (LTV) so that the overall debt is smaller, and interest rates are lower, which in turn reduces the cost of the repayments.

For example, if a mortgage of £300,000 is needed for the purchase and the parents have £50,000 in savings, linking the mortgage account to these savings will reduce the amount being borrowed to £250,000.

The same effect can of course be achieved by putting down a deposit of equal value, but with a family offset mortgage the savings money is returned in full to the parents, once the child has paid off an agreed proportion of their mortgage, usually 25-30%, and it might even accrue interest during the mortgage term.

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What are the benefits of a family offset mortgage?

These flexible family mortgages can be a great solution for both parties involved, providing a leg-up onto the property ladder that avoids the often prohibitive outlay of a deposit for the children – while also reducing repayments by allowing access to the favourable interest rates associated with lower loan to value (LTV) ratios.

While the advantages to the children are obvious, parents benefit from being able to help them with the significant upfront costs of purchasing a home without having to give money away permanently. Instead they transfer existing savings to the linked account, knowing that they will get it back once the child is in a position to ‘take over’ the mortgage completely, and they might even earn interest during this period.

Who is eligible for a family offset mortgage?

As long as the applicant can prove they are able to afford the repayments, each lender has its own policies on who they will accept as a borrower: generally the ‘riskier’ the borrower is perceived to be (due to any bad credit issues or buying a non-standard property for example), the smaller the pool of lenders willing to lend will be, which can make it harder to access more favourable interest rates and products with smaller deposits. But in the special case of family offset mortgages there are a few additional details to consider.

First, there is the issue of who counts as a family member, and even if non-family members can benefit.

For example, family offset mortgages with Barclays or Nationwide does not include friends, neighbours or anyone else who is not a legal relative (this definition usually includes step-children, grandchildren, parents, civil partners, spouses, brothers and sisters and more), while one or two lenders can allow customers to link savings accounts to a friend’s mortgage.

Secondly, there is the question of the amount of savings required to help a family member with their mortgage, which we cover in the next section.

How much do you need in savings for a family offset mortgage?

This will depend on the value of the property being purchased, and is usually about 10% of that figure. For example, if the property is valued at £200k, the parents need at least £20,000 in their savings account.

In some cases the provider may stipulate that the parents need to have a certain amount held in savings regardless of the value of the property.

For example, at some high street lenders, customers usually need to have at least £50,000 in savings in a specified bank account, or an annual income of £75,000 or higher.

Where can I find the best family offset mortgages?

Too many people head straight to a high street bank or rely on online rates tables in the hope of landing the best deal. Neither approach is the best way to find the right family offset mortgage for you, and we’ll explain why…

By approaching a lender directly, you’d only have access to their products and that means seriously limiting yourself. There’s a vast market out there, so what’s to say there isn’t a far superior interest rate available with a lender you’ve never heard of?

Online rates tables and comparison tools, meanwhile, will only give you a rough idea of the market. The products they showcase aren’t bespoke to you, and some of them could even be sponsored deals that the service is promoting.

If you want to be sure that you’ve landed the best deal for your needs and circumstances, speaking to a broker who has specialist knowledge of family offset mortgages and unrestricted access to the available products is your best bet. They know exactly which lenders are best placed to offer great deals on family offset mortgages, can search the entire market for the best solution for you, and guide you through every step of the application process.

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Which lenders offer family offset mortgages?

There are only a limited number of lenders currently offering family offset mortgages. They are a mixture of high street mortgage providers, such as Natwest and Barclays – who state that they offer them “subject to product availability” – and specialist lenders including Accord Mortgages and The Family Building Society.

Some of the lenders who offer family offset mortgages apply caveats to these agreements. For example, Beverley Building Society cap the loan-to-value ratio at 80% and the amount invested cannot exceed 75% of the loan balance.

Approaching an offset mortgage lender directly is not recommended since you’d be limiting yourself to just one product range and would have no guarantee you’d be getting the best rates on the market. What’s more, you could end up with a lender who applies restrictions on these arrangements or whose criteria you don’t fit.

The best way to find the right lender, first time, and boost your chances of mortgage success is to apply through a broker who specialises in family offset mortgages. That way, you’ll have access to every deal that you qualify for and can rest assured that you’ve found the very best option for you and your family.

Speak to an all-of-market expert on family offset mortgages today!

If you have questions about family offset mortgages and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

The advisors we work with all have an up-to-the-minute knowledge of the whole market, so will be best place to find a suitable mortgage for you and your loved ones.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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