Fresh Start questions answered
How does the mortgage work?
The principle behind The Loughborough Fresh Start mortgage is simple. With the help of parents, a step-parent, sibling or grandparents you could apply for a mortgage even if you don’t have enough deposit to buy or enough equity in the house you live in to make it your own.
The mortgage comes with a range of options that mean family members with a variety of circumstances could make it possible for you to get onto the property ladder.
Who can apply for a Fresh Start mortgage?
The Fresh Start mortgage is available to 18+ year old UK residents throughout England and Wales who have sufficient income to afford the mortgage repayments.
How much could I borrow?
We will lend up to 100% of the value of the property, subject to a maximum of £300,000 (£90,000 minimum). The actual amount you can borrow will depend on your income after the deduction of household expenses and other financial commitments.
What security is needed?
Your family member(s) are able to support you by providing security in the form of Cash, Collateral or both.
1. Security through savings: this allows the family member(s) to use their savings to help you (the buyer) without having to ‘give’ the money to you. The family member(s) deposit cash in a specifically designed savings account with the Society. The cash deposited must be for an amount equal to 20% of the value of the property to be purchased.
2. Security through property (collateral): this allows the family member(s) to help even if they don’t have spare cash but do have equity in their home. The family member agrees to some of the equity in their residential property being used as security. They would do this by giving what is called ‘a legal charge’, for an amount of equity equal to 20% of the value of the property to be purchased, which means the Society would have specific legal rights over the family member’s residential property.
3. Or, a combination of options 1 and 2 is available. The minimum amount of each security option is £5,000.
The security noted in the examples above can be used to make up any shortfall (loss) that arises if the property is sold.
What is collateral security?
Collateral security is where the Society registers a legal charge over your family member’s residential property. The amount of the charge will be limited to the value of the security being provided and will be prepared and registered by the borrower’s solicitor.
What is cash security?
Cash security is where your family member deposits cash in an Assisted Purchase Deposit Guarantee Account. The account must be in the names(s) of the family member(s) who have provided the guarantee. The cash security agreement will be prepared and registered by the borrower’s solicitor.
Can a combination of cash and collateral security be used?
Yes. If a family member wishes to provide both types of security, they can, subject to a minimum amount of £5,000 for each of the security options. For example, if the total deposit security required is £40,000 a £5,000 cash security and £35,000 collateral security is acceptable.
Who owns the property?
Like any other mortgage the property is owned by the borrower. Family members providing support have no rights to the property.
Can more than one family member provide support?
This may be possible and our mortgage advice team can discuss this option with you. All family members providing support would need to agree how the deposit security is split between them and they would all be required to take separate independent legal advice.
Can family members help more than one member of their family at the same time?
Yes, there are no restrictions on the number of family members that can be helped in this way.
You can help more than one family member with cash as security; however, it will be necessary to have a separate Assisted Purchase Deposit Guarantee Account for each cash security.
Helping more than one family member using collateral security against property would need separate mortgage collateral deeds for each deposit security being provided. The total of all existing mortgages and all mortgage collateral deeds is strictly limited to a maximum of 75% of the family member’s residential property value.
Are savings provided as cash security covered by the Financial Services Compensation Scheme?
Will family members get regular statements?
No. Annual mortgage statements will only be provided to the borrower because the family member isn’t responsible for maintaining the monthly mortgage payments. The family member will, however, be notified if mortgage payments are not made as required.
What are family members liable for?
A family member who provides cash security needs to be fully aware that the cash will be called upon to make up any shortfall if the property is sold in the event of default and the proceeds are less than the mortgage debt plus costs. Where property is provided as security the family member’s residential property may be repossessed by us to recover the debt. Liability is limited to the amount of the security.
If security is provided by more than one family member, the liability to make up any shortfall will be divided proportionately by reference to the value the respective securities bear to the total value of all additional security linked to the Fresh Start Mortgage. For example, if the total guarantee provided was £40,000 and family member A provided £30,000 (75%) and family member B provided £10,000 (25%) and the property was repossessed and sold at a loss of £20,000 then family member A would lose £15,000 (75%) and family member B would lose £5,000 (25%).
All family members will be required to take independent legal advice before the borrower is committed to the purchase.
What happens when the borrower wants to move on to a new house?
The existing property is sold and the mortgage repaid. Providing the sale proceeds are sufficient to repay the outstanding debt in full, collateral security on property is released and security in the form of cash is returned to the family members.
What if the borrower decides to sell their home and doesn't wish to buy another property?
Early Repayment Charges will apply if this occurs during the product term. Thereafter, the Early Repayment Charges applicable to any subsequent product would apply unless that product term had also come to an end.
How are family members released from their commitment?
The release conditions as detailed in the Security Deposit Agreement (for cash security) or the Collateral Charge document (for a collateral security) must be satisfied. In summary, the family member will be released if;
a) The mortgage debt under guarantee is repaid in full; or
b) A formal request is made on the basis that the release conditions set out in the Agreement and repeated below have been satisfied in full;
I. The borrower is not in breach of their mortgage terms and conditions; and
II. The borrower has made all monthly mortgage payments in full when due in the previous six months; and
III. The Society is satisfied, acting as a reasonable and prudent lender, that the borrower is able to afford to continue to make monthly payments and discharge their obligations under the mortgage for the remainder of its term; and
IV. The amount of the mortgage debt under guarantee does not exceed 75% of the open market value of the charged property based on the valuation undertaken at that time by the Society’s valuer i.e. the mortgage balance must be no more than 75% of the valuation for mortgage purposes at the time the release request is received.
What happens if the mortgage account goes into arrears?
The borrower is responsible for ensuring payments are made when due and for the full mortgage amount outstanding, plus interest, costs and expenses. The Loughborough will ensure that family members receive communications relating to the mortgage account and are notified if payments are not kept up to date.
What happens if the property is repossessed?
If the property is repossessed and sold for an amount less than the balance of the mortgage account including fees and charges, the family member will be liable for the shortfall up to the limit of the security provided.
If a cash security deposit has been provided, the shortfall will be recovered from the Assisted Purchase Deposit Guarantee Account. If collateral security has been provided, the shortfall will be recovered from the proceeds of the sale of the family member’s residential property unless the shortfall can be met through other means.
What happens if the family member or if in joint names, one of the family members dies?
The Loughborough will assume power of attorney in accordance with the Security Deposit Agreement (for cash security) or the Collateral Charge document (for a collateral security). The family member’s estate has the option of paying off the security liability and providing that the remaining release conditions are met then the security may be relinquished. This will be explained to you further by your independent legal adviser.
Why do family members need to get independent legal advice?
It is a condition of the mortgage that family members get independent legal advice to ensure they understand the commitment they are making and the risks involved before giving us a legal charge over cash and/or property. To avoid a conflict of interest, family members can’t use the same solicitor who is conducting the conveyancing on the linked mortgage but it can be another solicitor from the same firm.