It is a 100% mortgage but not, thank goodness, as we once knew them. Lloyds Bank’s new Lend a Hand mortgage offers first-time buyers the chance to borrow the entire price of their new home – but with the considerable caveat that a relative has to have a lump sum worth 10% that they are willing to tie up for three years, and have it raided if you miss any payments.
So, first up: this is no use at all for anyone without a family member with a chunk of cash they don’t need, willing to help them on to the housing ladder. But nor is it the return of the bumper mortgage market we saw in the run-up to the financial crash, where loans of up to 125% were available (leaving some borrowers trapped in negative equity after the downturn). There is still careful thinking to be done before taking on a mortgage this size – and never more so than now, with uncertainty over Brexit clouding the market.
Lloyds’ deal offers a mortgage of up to £500,000, which can be arranged over up to 30 years. The rate is a competitive 2.99%, fixed for three years, making it very slightly cheaper than the similar Springboard deal from Barclays. Over that same period, your family member’s cash sits in a linked account and earns interest at 1.5% above the base rate – a good deal in the current market. After three years they can take their cash, and you either move to Lloyds’ standard variable rate (SVR) or look for a new mortgage.
According to Andrew Hagger of Moneycomms.co.uk, if house prices do not budge between now and then, someone who has opted for a 30-year term will have paid off 6.5% of their loan – leaving them in need of a 93.5% mortgage to switch to. Moneyfacts.co.uk figures show that there are remortgage deals available with the same rate as the Lloyds’ loan, so switching would not be too painful.
But if house prices go south, you could run into problems. In the worst-case scenario you could end up in negative equity, with a mortgage debt higher than the value of your home – leaving you stuck with Lloyds and unable to move without taking a financial hit. The prospect could be enough to put you off a 100% mortgage – especially when it is far from 100% clear how Brexit will affect the housing market.