Family Building Society launch: does it stack up?
Family Building Society has launched in the UK - the first new building society in 30 years - with the aim to "help families help themselves".
But how does it stack up against rival mortgage and savings providers?
Its core product is the Family Mortgage, which allows parents and grandparents to assist the younger generation to get onto the property ladder, without simply having to hand over cash for a deposit.
The society believes its mortgage options will be welcomed by the growing number of 45 to 60 year olds who – its research revealed – are becoming less certain about their own financial futures but still want to help their younger family members.
There are three main elements of the Family Mortgage. The first option allows parents, grandparents and other relatives to open an interest-paying savings account, where the sum deposited provides security for the mortgage so that the mortgage holder pays a lower rate.
The account will pay 1% gross and money can stay in the account for up to 10 years, which the society says is more than long enough as the typical first-time buyer tends to move after four or five years.
While the mortgage borrower must have a deposit of at least 5% of the value of the property they wish to buy, the amount deposited in the savings account must be another 20% to secure the Family Mortgage.
The second option is for the relative to enter into an offset arrangement, whereby they forego interest on their savings but the mortgage holder pays a lower overall rate of interest and no interest on the offset amount - which again must be at least 20% of the property purchase price.
That compares with just 10% with the Woolwich Family Springboard mortgage, which works in a similar way. And with the Family Mortgage, relatives can also agree to a charge on their own house, reducing the need for a larger deposit from the first-time buyer.
Whichever option taken, a protection feature is built in so that should the mortgage holder lose their job through no fault of their own, their share of the mortgage will be paid for up to six months.
The society also has another mortgage product called the Low Start mortgage. For the first six months, a fixed rate of 1.39% applies and the mortgage is interest only.
Between months seven and 12, the rate lifts to 2.69% but remains interest only. In the second year this again rises to 5.39% before reverting to repayment of interest and capital in years three to five at the same rate, and then switching to a variable rate of 4.79% for the remainder of the term.
The society said that "the combination of low rates in the first year with no capital repayments for the first two years is deliberately designed to keep payments low as borrowers adjust to their new financial circumstances".
However, David Hollingworth, spokesman for London & Country mortgages told Moneywise: "It will still be important for the mortgage borrower to ensure they can afford the mortgage repayments. The usual affordability criteria will apply so this mortgage isn't a way to sidestep them."
He added that while the mortgage rates on offer don't compare to other 75% LTV deals, he said he expects them to appeal to that group of family members who want to help the younger generations without having to gift them a deposit.
Part of the National Counties Building Society, the Family BS also has a range of savings accounts including the Market Tracker Cash Isa (Nisa) paying 1.37% gross on balances of £500 and upwards. It can be opened and operated online at familybuildingsociety.co.uk and accepts transfers in of cash Isas.
Its Junior Cash Isa has a tiered rate paying 1.75% gross on balances of £1 and up, £2.25% on £1,000 plus and 2.5% on £3,000 and over.
Susan Hannums of SavingsChampion.co.uk said: "There are better rates available elsewhere, so these are a fairly underwhelming new release."
She is also not a fan of the Helping Hand Saver and First Time Buyer savings account, both of which pay up to 1% gross/AER and pay up to £500 towards mortgage fees for a mortgage taken out through the provider.
"Whilst the fees are an attractive prospect, the actual interest rate you will receive is not very competitive, so you would have to weigh the two up, while also taking a view on the mortgage features and rates on offer," she said.
That said, she added: "An interesting new type of account has also been launched by the Family Building Society, that pays a gross rate that is an average of the top 20 variable accounts available. However, they exclude bonus accounts including introductory or conditional bonuses (such as exceeding a set number of withdrawals)."
There are two versions of the account – the Market Tracker Saver and the Market Tracker Cash NISA, which are paying 1.27% gross/AER and 1.37% tax free/AER respectively.
"The advantage is that savers would receive a consistently competitive interest rate; however, savers would never achieve the top rate and given the exclusions when assessing the top 20 variable accounts, the rates will be seriously diluted compared to what savers can achieve when looking at the whole market," explained Hannums.
"The accounts, however, could be ideal for those who don't want the hassle of switching accounts when the interest rate is no longer competitive, but those willing to shop around for the best deals and switch to a new account will always earn more interest."
She added: "There are better rates available for savers elsewhere. [But] hopefully, after testing the water, The Family Building Society will start to offer improved deals to give savers more interest than they are currently getting from more established providers."
The new society has no branches but mortgages are available through financial advisers and mortgage brokers and the savings accounts can be opened online at familybuildingsociety.co.uk.
Savings are protected by the Financial Services Compensation Scheme, but remember the society shares its licence with National Counties Building Society so only £80,000 per saver will be protected across both brands.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A type of derivative often lumped together with options, but slightly different. The original derivative was a future used by farmers to set the price of their produce in advance before they sowed the seeds so that after the harvest, crops would be sold at the pre-agreed price no matter what the movements of the market. So a future is a contract to buy or sell a fixed quantity of a particular commodity, currency or security (share, bond) for delivery at a fixed date in the future for a fixed price. At the end of a futures contract, the holder is obliged to pay or receive the difference between the price set in the contract and the market price on the expiry date, which can generate massive profits or vast losses.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.