A 100% mortgage, which provides a loan for the full value of the home without the need for a deposit, has been launched by Lloyds Bank.
The ‘Lend a Hand’ mortgage, which has a three-year fixed rate of 2.99%, will enable first-time buyers with family support to get on the property ladder but also offers an incentive for the parents – or relatives – helping them.
Mortgages which cover 100% of a home loan are controversial. They pose more risk for the lender and have been scarce since the financial crisis because of concerns they foster irresponsible lending.
However, whilst Lloyds’ new product does not need a deposit from the buyer themselves, it requires 10% of the loan as security from the parents, or the family member providing financial support.
This money is invested by Lloyds for three years, at a fixed rate of 2.5%, meaning parents helping their children through the ‘Bank of Mum and Dad, will gain financially.
Help for struggling borrowers
Rachel Springall, a finance expert at financial data analysts, Moneyfacts.co.uk, said the new mortgage would appeal to borrowers with little or no savings for a deposit, who were struggling and wondering if they might ever become a homeowner without support.
“Parents too,” she added, “may well want to help their children get their first home, but are hesitant to relinquish their hard-earned savings, so a guaranteed fixed return for three years at a fantastic rate will no doubt be enticing.”
Savings rate
As savings rates go, this one is particularly competitive, according to Moneyfacts’ data. It said Al Rayan Bank’s fixe 36-month bond which pays a fixed rate of 2.5% is currently top of its market and offers the only competition at the moment.
Lloyds said this feature of the mortgage would appeal to parents who wanted to help their children get onto the property ladder but were worried about parting with their own money.
Indeed, recent research by the lender discovered that while two thirds of those polled wanted to help their children, two in five were put off because they thought they might need the money later, mostly for retirement.
Vim Maru, group director of retail at Lloyds Banking Group, said: “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.”
What to consider before proceeding
Lend a Hand is available for mortgages up to a maximum of £500,000. One of the borrowers or savers must be a Club Lloyds customer.
Moneyfacts said Barclays had a similar product, the Family Springboard mortgage, which offered the 100% loan at a rate of 3% fixed for three years. Parents must also put up a deposit, which goes into a savings account, offering a rate of 2.25%.
This rate, however, is guaranteed to be 1.5% above the Bank Base Rate so if the Bank of England increased interest rates, customers on the Family Springboard savings scheme would see their rate rise too.
