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New deal allows you to get a mortgage with no deposit

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Written by: Joanna Faith
28/01/2019
There's a new way for the Bank of Mum and Dad to help their children onto the housing ladder
New deal allows you to get a mortgage with no deposit

First-time buyers with no deposit can now apply for a mortgage from Lloyds Bank – but they will need a family member to back up the loan.

The 100% loan to value (LTV) mortgage is fixed for three years at a rate of 2.99% and comes with no product fee. Homebuyers will be able to borrow up to £500,000.

Parents or other family members will have to put down cash worth 10% of the loan into a three-year fixed rate savings account and will receive 2.5% interest – as long as the mortgage repayments are paid on time.

The new ‘Lend a Hand’ product is part of Lloyds Bank’s commitment to lending £30bn to first-time buyers by 2020.

Vim Maru, group director of retail at Lloyds Banking Group, said: “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.”

Key facts about the deal

– Either the borrower or family member must open a Club Lloyds current account before the mortgage is taken out, which comes with a £3 per month fee unless at least £1,500 is paid in monthly.

– As part of the current Club Lloyds offer, eligible customers can receive £500 cashback when they complete on a mortgage with the bank.

– The mortgage is available direct only, not through brokers.

– The savings account must be open before the mortgage offer and funded before mortgage completion.

Verdict

Half of young people who want to buy a house say saving for a deposit is the biggest barrier, so this deal will no doubt grab the attention of first-time buyers. It may also be appealing to parents who are hesitant to part with their savings.

Andrew Hagger, personal finance expert from Moneycomms, said: “The family members will like the fact that they can help their children with their first home purchase, knowing that they will get it back after three years.

“However, they should be aware that if repayments are not maintained then the bank won’t release the funds back on the third anniversary.”

The savings rate Lloyds is offering is highly competitive.

“The Bank of Mum and Dad can get a table-topping savings rate of 2.5% fixed for three years under the Lend a Hand deal. Currently Al Rayan Bank pays 2.5% as a gross profit rate on its 36-month fixed bond, which is at the top of its sector and offers the sole competition at present,” said Rachel Springall, finance expert at Moneyfacts.

Barclays offers a similar ‘family springboard’ deal fixed at 3% for three years, with a current lower savings rate of 2.25%.

Springall added: “The Lend a Hand mortgage from Lloyds Bank has a maximum term of 30 years, but the Barclays Family Springboard mortgage has a maximum term of 25 years. Therefore, borrowers looking to reduce their monthly repayments will find the Lloyds Bank deal very accommodating, but they must be mindful that the longer the mortgage term, the more interest it will cost overall.”

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