Can someone cleverer than me, help with these sums?

[sumshelp]

My son is looking to buy his first flat. The Home report value is £160k, but to get it we are going to have to offer about £170k - very common here as property gets snapped up fast.

We know the mortgage lender will only lend £160k because that's what the home report value is, so the extra £10k will be added by his Dad and me (we are divorced, so £5k each).

These are our mortgage options :

Mortgage 1 - requires a 5% deposit @ £8k
Lender lends £152k
We add £10k
Int rate is 4.79%
Initial term 2 years

Mortgage 2 - requires no deposit (Barclays family springboard mortgage)
Lender lends £160k
We add £10k
Int rate is 5.29%
Initial term 5 years

By my calculations, the Mortgage with the higher rate will cost an extra £4k in interest, over the 5 year term. However, it could be argued, that if the £8k was invested (instead of being used as a deposit), it could earn a similar sum. But am I missing something here, as he would have a lower balance too if he did supply a deposit?

Just ruminating it all over, because if DS puts in £8k, it wipes out of all his savings.

NB. Barclays family springboard mortgage would require me to deposit 10% of the mortgage balance into a savings account with them. So that's £16k for 5 years, and the rate is good. I can do this, and I save with Barclays already.

Help!

Out of those options, I'd definitely go for Option 1. BUT even that interest rates seems high, there are lower rates out there now...

There's no way I'd go for option 2. That interest rate is shit, and locked in for 5 yrs with it - no chance.

Option 1 allows him to cut the apron strings sooner, which you may or may not want.

I say Scotland. That's the norm here.

Haven’t rtft but if you bank with Barclays check the terms that the rest of your monies aren’t liable for offset in the event he gets into a pickle or negative equity

If the valuer says it's worth 160 then don't pay more.

Interest rates have been high the last 2 years and are expected to come down , so I wouldn’t lock in for 5 years now at such a high rate
Option 1

Says somebody who doesn't understand how to buy a house in Scotland. With those tactics you'd not have to worry about interest rates because you'd never actually buy anywhere.

Those interest rates look high to me, but that could be due to the relatively small deposit.

I suppose which one he takes depends on how his disposable income will be when he moves in and whether he expects to need to do any work on the property.

If the house is in good condition, he's not planning to do work or have to buy everything new and his disposable income will be decent such that he can afford to pay for appliances and any work etc as he goes along the first mortgage looks better, especially as he might qualify for a lower interest rate in 2 years time if he gets below 90% LTV.

However if he's expecting to want a new kitchen, not sure about the roof or boiler (or his car) or won't have loads of disposable income the 5 year fix and keeping back his £8k might be better.

Also given all the current turmoil in the world its probably a bad time to bank on investments outperforming mortgages in the relatively short term. My ISA has increased by more than 50% in the last 3 or 4 years but there's been some ups and downs along the way and history shows that some years the value goes down not up.

Hefty - but you know he can look into making higher repayments on mortgages which will reduce long term the interest paid. This is another option to consider.

Oh dear, oh dear, oh dear!

The only useful sentence here is the last one - consult an independent financial adviser.

1. You should always borrow as much as you can afford the repayments on (subject to sensible points made by others about not over-stretching yourself)
2. What does "borrow from your own funds" even mean? OP's son hasn't got £170K just lying around; and if hypothetically someone does have those funds they're not borrowing them they're reassigning them to a different investment ... which comes with all sorts of questions about attitude to risk, how long you can afford to tie up the money, etc, etc
3. And on the second half of that sentence, money wisely invested (not dumped in a savings account) will generally earn quite a lot more than the cost of mortgage interest at the present time. Certainly my stocks & shares ISA made 7.66% in the year Jan 25 - Dec 25 (but that was a poor year because there was a general drop in the stock market in the first quarter of 2025, other years have been higher) compared with my mortgage at 4.79%

@MrsJeanLuc

In answer to your comments:

1 - you should only ever borrow as much as you need - ie the minimum you have to borrow, not more. You shouldn't ever borrow more than is absolutely necessary, even if you can afford the repayments.

2 - re borrowing from your own funds - I was referring to what the OP said about the deposit of £8k and the additional £10k they were putting in. In other words, if you have that £8k deposit, use it instead of borrowing it. The interest you pay on that £8k loan is more than what it could earn in interest if you leave it in a savings account.

3 - You could not invest either £8k or indeed £18k in any kind of investment and make more money than the interest payable on borrowing it. How do you think banks and institutions earn their money? You invest your money with them at (say) 3% interest. They then lend your money to someone else and charge them 5% interest. Out of the interest they receive from the borrower they pay you 3% and keep 2% for themselves. Really, the only way you could do it is to invest in potentially high-risk investments or stocks & shares. However, the value of your investment can go down as well as up, as they say.

But what do I know? I only worked in a high street bank and then for an IFA for around 20 years. Which is why I suggested the best option would be to consult an IFA. Nobody on the internet can advise properly without full knowledge of the financial situation of all parties concerned.

@justtheotheronemrswembley your 3rd point doesn’t make sense. The OP is talking about investing. Not savings accounts. Investing is stocks & shares etc etc - investments grow; they do not earn interest. Savings are the ones that earn interest. You’re conflating the two.
IF the op’s son invests (as per the OPs post) his 8k in a ‘global index fund’ for example it could absolutely grow to £12k in 5 years. But in yr 6 (or 4 or 3 or whenever) there could also be losses and he could end up with less than the £8k he put in. 5 yrs is borderline Longer allows for growth to iron out the falls; 5 yrs isn’t that long. Most ppl say minimum 5yrs depending on the fund, etc. That’s what she’s asking - she’s not asking about savings accounts because as you say you’ll be hard pushed to find one that beats both inflation & the mortgage rate.

Oh and when pp like @MrsJeanLuc say their S&S ISA grew by 7.8% that’s because they’ve done a calculation (or their platform has). They didn’t know what the growth would be when they invested that money. It’s nothing like savings @justtheotheronemrswembley

I cannot stress enough not to take financial advice from AI, please! And I say this as someone who works in a compliance role in financial services, and a former adviser myself. AI cannot guarantee the right answer, even the bigger ones like Chatgpt are full of rubbish answers & AI psychosis & it is not a professionally qualified adviser who is regulated by the FCA and covered by the Financial Ombudsman.

There are many fabulous mortgage advisors around, most won't charge a fee until the mortgage is agreed, and some don't even charge a broker fee at all. Please, get good advice on the biggest debt of your son's life!

Best of luck to your son, it's an exciting thing to buy your first home & a big achievement nowadays!

No good IFA will have time to talk to someone about a potential £8k investment. Even less so if that leaves you with zero emergency funds.

You can pay a flat fee for a consultation with an IFA.

Yes, we do offer that for transferring pensions, advising on investments, setting up trusts etc.

It would be wholly disproportionate to use my resources to compare 2 interest scenarios and for you to pay for it.

If you need help with this basic stuff, AI really is your friend.

Why!!! What madness! Giving your own flesh and blood 10k when you could spend that money on booze and fags! What an imbecile! It’s completely and utterly baffling to me that any parent would do this. I left home at 16 with only two pairs of underwear and a snotty tissue, and am now hugely successful with a large property portfolio. NO HELP FROM THE RENTS WHATSOEVER.

Have you confirmed that the mortgage lenders would offer the amount of the Home Value report? Have you ruled out other possible mortgages or are those the ones available? I ask as someone who had a very limited choice because I needed a guarantor mortgage, although thanks to my mum I had a larger deposit.

More interest rate cuts are predicted this year, and if they don't go up again or fall further, is being a higher interest rate for option 2 likely to seem even more expensive over 5 years?

Are there attached strings or exit penalties if your son is able to remortgage, hopefully with more equity, at the end of the deal's term perhaps, or otherwise, in a few years time?

I would go for Mortgage 1, lower interest and shorter fixed term, interest rates are going down so after two years likely to remortgage at a lower rate. Good luck!

You might find either are options once the purchase starts progressing. They factor in, the factor fees so it takes the affordability down. In the end with our son the bank would only do a 90% mortgage and guess which 'bank' had to stump up the extra

Nb tax will reduce interest on savings

worrying that you worked in any financial capacity based on what you have said, I do hope you weren't ever providing financial advice to anyone.

Of course you can invest money and achieve a better return than a mortgage interest rate. My interest rate is 4% on my mortgage and in 2025 I achieved a S&S return of around 16%.

You seem to be confused on what investment means.

Has your son considered something like the Nationwide Helping Hand mortgage? Interest rate currently 4.06% but likely to drop if Bof E drops base rate. He really needs to speak to a mortgage broker.

Standard in Scotland.