Lloyds TSB has launched a new first time buyer mortgage, dubbed the 'Lend a Hand' mortgage, with a possible loan to value (LTV) of 95 per cent at a competitive rate of4.39 per cent.
The lender is offering the deal by taking legal charge on a savings account belonging to the borrower's parents.
The interest rate offered on the Lloyds mortgage
works out at almost £100 a month cheaper than the industry average of 5.98 per cent on a 90 per cent LTV deal, the lender said, based on data from Moneyfacts.co.uk using a £100,000 loan over 25 years as an example.
Based on the example of a £100,000 home, the Lloyds first time buyer Lend a Hand mortgage
, offering 95 per cent of the value on a three year fixed rate of 4.39 per cent, is comparable to Lloyds' best current 75 per cent loan to value rate, the lender says.
A minimum £5,000 deposit is required from the buyer, in addition to savings provided by their parents, grandparents or friends, which is held in the Lloyds TSB 'Lend a Hand' savings account for 42 months at a rate of 3.5 per cent. Together, the deposit and savings must add up to at least 25 per cent of the property's value, with the buyer providing at least five per cent.
This system enables first time buyers
who lack a substantial credit history to get a mortgage, which has proven to be a common obstacle for them in the past when it comes to higher loan to value deals.
After the term has finished, if the mortgage has changed from a 95 per cent to 90 per cent loan, as a consequence of mortgage repayments or rising house prices, the legal charge on the savings accounts can be removed and the buyer is free to operate their mortgage independently, either with Lloyds, or by remortgaging with another lender.
"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," said Stephen Noakes, commercial director of Lloyds Banking Group mortgages, of the reasons behind Lloyds launching the Lend a Hand mortgage.
"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."
Clare Francis, site editor at moneysupermarket.com, said that the new Lloyds mortgage "is a great product to help first time buyers get on the housing ladder."
"Not only is the rate competitive," she said, "but it's really good to see some new activity in the high Loan To Value market. It is another indication that funding pressures on lenders may, at last, be starting to ease."
Ms Francis added: "We now need other lenders to follow Lloyds' lead in order to bring an end to the impasse that has been strangling the housing market."
Andrew Hagger of Moneynet.co.uk thinks that Lloyds "should be applauded."
"Product innovation such as this deal from Lloyds TSB will give a much needed shot in the arm to the FTB market," he commented. "An increase in FTB activity can only have a positive knock on effect on links further up the property chain."Get mortgage quotes »
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