There will always be interest when a lender launches a mortgage product aimed at first-time buyers without the need for any deposit.
Lloyds Bank has offered ‘lend-a-hand’ products in the past, but the latest incarnation takes the maximum loan-to-value to 100 per cent of the purchase price.
As with many solutions that have sought to enhance mortgage options for first-time buyers, it looks to the ‘bank of mum and dad’ to offer help.
The structure of the Lloyds deal is very similar to others already on the market.
This type of deal can offer a useful option as long as the first-time buyer can demonstrate affordability adequate to cover the borrowing.Available to first-time buyers only directly through Lloyds, it will offer a mortgage of up to 100 per cent of the property value subject to additional security being provided by the borrower’s parents.
Parents will need to fund a savings account with the equivalent of 10 per cent of the purchase price, which is locked away for three years.
It is not all bad for the family helper though as they will receive fixed interest on the savings at 2.5 per cent. They will only regain access to the cash after the three years, assuming that all the mortgage payments have been met.
The mortgage is fixed for three years at a rate of 2.99 per cent – a leading rate in what is admittedly a sparsely populated area of the market. It carries no arrangement fee and offers £300 cashback to the family member to help with legal fees.
The product follows a strikingly similar approach to the Barclays family springboard mortgage, which is likely to be its main competition and currently offers a three-year fix at 3 per cent up to 100 per cent LTV.
This type of deal can offer a useful option as long as the first-time buyer can demonstrate affordability adequate to cover the borrowing.
That may still be a challenge for many who struggle to borrow enough to meet the required purchase price, but it does give a chance to those that have yet to pull together a deposit.
It is also a useful approach for parents that may have cash that they are prepared to use to help their offspring get on the ladder, but may not be able to simply hand over the cash as a gift.
That could be particularly useful where there are one or more siblings, allowing the cash to be recirculated after the initial three years.
Equally, they may prefer to keep it in their own name, especially if there is another joint buyer involved.
Overall, the Lloyds deal is not a radical new departure in itself but does follow a structure that can work for the right niche of borrower.
David Hollingworth is associate director, communications at L&C Mortgages
