Britain’s biggest lender is to offer 100% mortgages to first-time buyers in a return to lending last seen before the financial crash – but only if the buyer has family that can stand behind the loan.
Under the new Lloyds Bank “Lend A Hand” deal, a first-time buyer will be able to borrow up to £500,000 for a new home, without putting down a penny of deposit.
The Lloyds move marks a major expansion into the first-time buyer market, as most other mainstream lenders demand a minimum deposit worth 5% of the property purchase price, although Barclays has offered a similar “family springboard” deal. Lloyds has priced the mortgages to undercut the Barclays offer.
The deal – part of what Lloyds said is a £30bn commitment to help first-time buyers – will reopen concern about a two-tier market where buyers with well-off families can elbow aside those without.
Saving for a deposit is usually cited by first-time buyers as the biggest hurdle to home ownership. Lloyds saidthe average deposit put down by first-time buyers has climbed to £33,211, and a staggering £110,182 in London.
The Lloyds deal requires that a member of the family – such as parent, grandparent or close relative – helps out. The bank will only grant the 100% mortgage if the family member puts a sum equal to 10% of the value of the property into a Lloyds savings account.
The deal is structured so that the “Bank of Mum and Dad” can help out their children, yet still keep control of their cash savings that they will need later in life. Lloyds will pay what it described as a market-leading interest rate of 2.5% on the money deposited.
Vim Maru, group director of Lloyds Banking Group, which also controls Halifax, 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.”
The deal is also aimed at reviving a property market languishing in Brexit uncertainty. Estate agency Your Move said last week that up to 25% has been wiped off house prices in some of the UK’s wealthiest areas, with Brexit leading to falls of almost £500,000 in some cases. Meanwhile, the surveyor’s body, RICs, said that the outlook for sales is the worst in two decades.
The Lloyds’ mortgage is structured as a three-year fixed rate deal priced at 2.99%. During the three-year period, the family member who has deposited the money with Lloyds cannot access their cash. Initially the deal is available in England and Wales only.
The latest mortgage offering comes hard on the heels of a surge in 10-year fixes to beat Brexit uncertainty. Lenders such as First Direct have slashed interest rates on ultra-long term deals to as low as 2.44% a year pegged for a decade. But these deals require buyers to put down large deposits, often as much as 40% of the value of the home being bought or remortgaged.
Lloyds research found that buying their first home remains the number one life goal for people aged 18 to 35, but half said that saving for a deposit is the biggest barrier. It also found that 41% of parents said they wanted to help their offspring on to the property ladder, but were worried that they would need the money later in life.
The amount of savings held by parents with children aiming to buy a home was surprisingly high, according to the Lloyds research. It found that parents had average savings balances worth just over £43,000, or a third more than the average deposit needed.