Lloyds TSB launches first-time buyer mortgage

Lloyds TSB has launched a mortgage designed to bring the housing ladder within reach for first-time buyers.

The three-year product, called ‘Lend a Hand’, offers first time buyers a 95% loan to value (LTV) mortgage at 4.39% by taking a legal charge on a savings account belonging to their parents.

This is almost £100 a month less than the industry’s average 90% mortgage rate of 5.98%. The legal charge means the parents retain ownership of their savings while earning a competitive fixed interest rate of 3.5%.

It also lets Lloyds TSB lend to customers with less of a credit footprint, a common reason why many first-time buyers fail to qualify for a higher loan to value mortgage.

For example, on a £100,000 property, a 95% LTV mortgage of £95,000 is provided by Lloyds TSB at a three-year fixed rate of 4.39% with a £995 fee. This is equivalent to Lloyds TSB’s best current 75% LTV rate. £5,000 is provided by the first-time buyer as a deposit for the property, £20,000 is provided by parents, grandparents or friends and held in the Lloyds TSB ‘Lend a Hand’ savings account earning a fixed rate of 3.5% for 42 months.

The combination of the contribution by the parents and the first-time buyer must equal 25% of the property’s purchase price; of which the first-time buyer must provide a minimum of 5%. At the end of the deal, if the combination of mortgage repayments and rising house prices has moved the mortgage from 95% to 90% LTV, the legal charge on the savings account can be removed and the first-time buyer can operate their mortgage account independently, either on Lloyds TSB’s standard variable rate, by switching products or remortgaging.

Stephen Noakes, commercial director of mortgages at Lloyds Banking Group, said: “First-time buyers are essential to returning the housing market back to good health because every first-time buyer helps, on average, four other households move. As the UK’s largest mortgage lender we’re committed to help first-time buyers onto the housing ladder and this includes finding innovative ways to lower the first rung so that it is within reach for more people.

“Market conditions mean virtually no 95% loan to value mortgages are available at the moment, while the few that are come at a high price with stringent credit requirements. The legal charge on the parents’ savings account means we can offset the risk of lending at this level to offer a realistic and affordable option for first time buyers. It also gives parents a way of helping their children without actually having to write the cheque.”

Andrew Montlake, director of independent mortgage broker Coreco, said: “While there are a few conditions to this new mortgage product, they are far outweighed by the positives. 4.39% fixed for three years at 95% LTV is an exceptional rate and, presuming parents still have some spare cash floating around, will be a major fillip for certain first-time buyers and therefore the market as a whole.

“What’s clever about this product is that you can raid the Bank of Mum and Dad without leaving them high and dry, it’s about using capital rather than using it up, and the 3.5% fixed interest rate isn’t too bad at all in the current market. It’s effectively a 75% LTV mortgage parading as a 95% loan.

“A word of caution: parents and grandparents need to understand that they don’t get their money back automatically after three years if property prices have fallen, although the general consensus is that we’re now at, or near, the bottom of the market. Importantly, this is a clear sign that Lloyds TSB is backing the property market to recover.”