Lloyds' new mortgage allows first-time buyers to buy with no deposit - does it stack up?
Lloyds Bank has launched a mortgage designed to help first-time buyers get on the property ladder without having to save a deposit.
The deal - one of the bank's family support mortgages - works by lending first-time buyers 100 per cent of the property purchase price so long as a family member agrees to deposit savings equivalent to a minimum of 10 per cent of this loan into a fixed-rate savings account with the bank.
The rates on both the mortgage and the savings side of the deal are best buy.
The first-time buyer can lock into a 100 per cent loan-to-value fixed rate at 2.99 per cent for three years while their supporting family member will earn a table-topping 2.5 per cent on their savings fixed for three years.
Lloyds Bank has launched a mortgage designed to help first-time buyers get on the property ladder without having to save a deposit +1
Lloyds Bank has launched a mortgage designed to help first-time buyers get on the property ladder without having to save a deposit
Vim Maru, group director of retail banking at Lloyds Banking Group, said: 'We are committed to lending £30billion 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.'
The only other three-year fixed rate available up to 100 per cent LTV is from Barclays, which is charging borrowers three per cent for the mortgage and pays the corresponding saver base rate +1.5 per cent - currently 2.25 per cent.
Savers looking for a home for their cash without helping family members onto the property ladder meanwhile can only command 2.45 per cent interest, the rate paid on the current best buy three-year fixed rate savings bond, from Gatehouse Bank.
How does the Lloyds Lend a Hand mortgage work?
Borrowers must be a first-time buyer to qualify for the deal and have a willing family member able to put up 10 per cent of the property purchase price as a savings deposit with the bank for three years.
During this time the borrower will be responsible for making mortgage payments on 100 per cent of the loan at a rate of 2.99 per cent while the saver will earn interest at 2.5 per cent.
A borrower purchasing a property worth £200,000 using this mortgage taken over 25 years would have monthly repayments of £947.
Their family member would have to put £20,000 into the Lloyds savings account and would earn £1,556 in interest over the three years.
Borrowers can also extend their mortgage term up to 30 years, which could help to bring down their monthly repayments, although a longer term will mean that borrowers end up paying more interest overall.
Loans are available up to £500,000 and borrowers receive £300 cash towards their legal fees plus £500 cashback when the mortgage application completes.
In order to apply, either or both the borrower and saver must be a Club Lloyds customer - in other words, hold the Club Lloyds current account which costs £3 a month unless you pay in £1,500 a month, in which case the account is free.
It also offers a choice of lifestyle benefit when you sign up: six cinema tickets for Vue or Cineworld; annual Gourmet Society membership; or, an annual magazine subscription.
To qualify, the savings account must be open before mortgage offer and funded before mortgage completion. Savings funds may not be withdrawn during the three-year period.
They can be accessed after the three year period - while the borrower would then need to remortgage or end up Lloyds' higher default rate.
The deal is initially available to customers buying only in England and Wales.
Should you be the Bank of Mum and Dad?
Research from Lloyds reveals that the number one life goal for people aged 18 to 35 is to buy a house, with 43 per cent of this age group aspiring to be a homeowner.
But half say that saving a deposit is the biggest barrier.
Meanwhile, more than two in five parents, some 41 per cent, would like to help their children financially, but worry that they'll need the money later in life.
The average deposit for first-time buyers is £33,211 nationally and £110,182 in London.
Although parents recognise the struggle their children face to get onto the property ladder, only one in four thinks their child should save more - and according to Lloyds' research 18-35 year-olds are saving on average £182.80 a month.
At this rate, it would take around 15 years to save for the average deposit or just over 52 years to amass enough for a London pad.
The research shows that parents have average savings of £43,416 – 30 per cent more than the average deposit needed.
Those polled by the lender do want to help their children, but 41 per cent are put off as they might need the money later and 39 per cent think they may need it for retirement.
Does the Lend a Hand mortgage stack up?
This deal is competitive when compared to other 100 per cent LTV mortgages.
Not only does it have the best rate on the market, it also offers savers a better rate than they'll get from any other bank at the moment.
That offers both buyers and savers the very best of both worlds.
Not only can parents earn inflation-beating interest on their savings, children are getting an extremely cheap mortgage rate, allowing them to repay their loan with minimum interest.
The deal is also flexible on which family members can save on behalf of the borrower, meaning if parents are strapped for cash they can lock away for three years, grandparents can deposit the money instead.
The deal isn't the only one like this on the market - Barclays offers a very similar deal known as the family springboard mortgage and Nationwide will allow parents to borrow extra on their mortgage to gift to children as a deposit.
Aldermore Bank, Harpenden Building Society and Family Building Society also offer versions of a family mortgage, many of which require family members to use their own homes as security in place of depositing savings with the lender.
For first-time buyers who can afford to save a small deposit, even just five per cent, mortgage rates will come down pretty significantly with the best currently from Barclays at 2.8 per cent fixed for three years.
On the same house purchase as above, this would mean monthly repayments of £881.