Lloyds Bank has launched a 100 per cent loan-to-value mortgage linked to a savings account to help first-time buyers get a foot on the property ladder.
The Lend a Hand mortgage was launched following research by the bank that found buying a home was among the top life goals for millennials, but half of those surveyed said the deposit was the biggest obstacle.
Lloyd's latest launch removes the need for a deposit from the first-time buyer and instead up to 10 per cent of the loan is provided by the savings of a family member.
The mortgage is a three-year fixed with a rate starting at 2.99 per cent. The maximum term for the product is 30 years, and Lloyds will only lend up to a maximum of £50,000.
Alongside the mortgage is a savings account offering 2.5 per cent, fixed for three-years.
Vim Maru, group director of retail at Lloyds Banking Group, said: "We are committed to lending £30bn to first-time buyers by 2020 as part of our pledge to help people and communities across Britain prosper – and Lend a Hand is one of the ways we will do this.
"At the heart of this market-leading product is helping to address the biggest challenge first-time buyers face getting on to the property ladder, while rewarding loyal customers in a low rate environment.
"Although times have changed, children still have a similar ambition to their parents – to own their own home. Lend a Hand helps parents to invest in their children's future and get the best return on their cash."
Rachel Springall, finance expert at Moneyfacts.co.uk, said: "The brand new Lend a Hand mortgage from Lloyds Bank has been competitively priced and will no doubt grab the attention of first-time buyers looking to get on the property ladder.
"The limited distribution channel will enable Lloyds Bank to quantify demand, but hopefully it will soon be rolled out across all channels.
"Those borrowers with little or no savings for a deposit will no doubt be struggling and may wonder if they will ever become a homeowner without support.
"Parents, too, may well want to help their children get their first home, but are hesitant to relinquish their hard-earned savings, so a guaranteed fixed return for three years at a fantastic rate will no doubt be enticing."
Ms Springall adds that Al Rayan Bank currently pays 2.5 per cent as a gross profit rate on its 36-month fixed bond and a similar deal on the market is the Barclays Family Springboard mortgage, which is priced 0.01 per cent higher than Lloyds Bank's deal at 3 per cent fixed for three years, again at 100 per cent loan-to-value.
She said: "Parents would put up a deposit of 10 per cent, held within its Helpful Start Account, which offers a lower rate of savings interest at 2.25 per cent gross and is returned after three years.
"However, should base rate rise, the rate is guaranteed to be 1.5 per cent above Bank base rate, so savers could earn more interest than the 2.5 per cent offer with Lloyds Bank's Lend a Hand. Having said that, should interest rates fall, savers will see their interest dwindle."
Andrew Hagger, founder of Moneycomms.co.uk, said it was important to note the mortgage can't be used for new build properties.
He said: "The family members will like the fact that they can help their children with their first home purchase knowing that they will get it back after three years.
"However, they should be aware that if repayments are not maintained then the bank won’t release the funds back on the third anniversary.
"If all repayments are up to date but in three years’ time the borrower is in negative equity because of a fall in house prices, the family member will still have their 10 per cent savings stake returned.
"Although Lloyds will lend 100 per cent the applicants will still need to prove they can meet the bank’s affordability criteria.
"The danger with high LTV mortgages is what happens if house prices fall and the borrower is left with a high LTV balance that they can’t find a lender to take and they are forced into SVR - or in some cases they could fall into negative equity – it is something they should weigh up – especially at the moment with the current economic uncertainty in the UK surrounding Brexit.:
Jenny Turton is a freelance journalist
