BUY, BUY, BUY Lloyds Bank launches new 100% mortgage with NO deposit – but your parents must sign up 10% of their savings

The new mortgage lets your parents earn 2.5 per cent interest on the money they deposit

28 January 2019 - 11:57

BRITS struggling to get the money together for a deposit can now get a mortgage without one - as long as a family member contributes 10 per cent of the property purchase price from their own savings.

But as a perk for lending the cash, the new "Lend A Hand" mortgage from Lloyds Bank will pay family members 2.5 per cent in interest on the money they deposit.

The three-year mortgage, which is available to borrowers in England and Wales needing an up to 100 per cent loan, is fixed at 2.99 per cent.

It's available on mortgages of up to £500,000 over a maximum period of 30 years.

There's no fee and you can also bag £500 cashback once you've completed, plus an additional £300 to help cover legal costs - although the cashback offer can be withdrawn at any time.

But be warned that you can't take the mortgage with you if you move; so you need to be sure you're going to stick in your new home for at least three years or know you can repay the entire mortgage in that time.

You also need to be aware that if you miss your mortgage payments, the bank can take the cash from the 10 per cent "deposit" your family member has stumped up.

How does the mortgage work?

How it works, is that the family member who stumps up the effective deposit sets up a savings account with Lloyds Bank and pays in the cash before you apply for a mortgage.

It is then held as additional security for the loan earning 2.5 per cent interest.

After the three years, whoever helped you with the savings funds will be refunded their 10 per cent plus interest.

To be eligible, at least one of the borrowers or savers must be a Club Lloyds current account customer. If you're not one already, you can join before you apply for a mortgage.

Keep in mind that the account requires the customer to pay in at least £1,500 a month - or you'll be charged a monthly fee of £3.

 Getting a mortgage with no deposit can be tempting for first-time buyers
Alamy
Getting a mortgage with no deposit can be tempting for first-time buyers

The "no deposit mortgages", which often means a family member is brought in as a guarantor to get around tough restrictions, used to be really common.

But after the financial crisis 10 years ago, lenders started to withdraw these types of home loans from the market.

Now, more and more lenders are launching such deals, with Barclays and the Post Office offering them again as of last year.

Following news of the launch, Vim Maru, group director of retail at Lloyds Banking Group, said: "We are committed to lending £30billion to first-time buyers by 2020 as part of our pledge to help people and communities across Britain prosper – and Lend a Hand is one of the ways we will do this."

Is the mortgage a good deal?

Rachel Springall, finance expert at Moneyfacts, said the savings rate at 2.5 per cent is "table topping".

She said: "The brand new Lend a Hand mortgage from Lloyds Bank has been competitively priced and will no doubt grab the attention of first-time buyers looking to get on the property ladder.

"Those borrowers with little to no savings for a deposit will no doubt be struggling, while their parents 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 return will no doubt be enticing."

Barclays Family Springboard mortgage, is another similar mortgage. Its rate is 0.01 per cent higher than Lloyds Bank’s deal.

Again, parents deposit the 10 per cent into its Helpful Start Account, which currently offers a lower rate of savings interest at 2.25 per cent, and this cash is then returned after three years.

The Barclays deal comes with a maximum term of 25 years, compared to Lloyds Bank's 30 years.

This mean you'll have higher monthly repayments but you'll pay less over the term.

Miss Springall said: "Therefore, borrowers looking to reduce their monthly repayments will find the Lloyds Bank deal very accommodating, but they must be mindful that the longer term mortgage they get, the more interest overall it will cost."

Meanwhile, Andrew Hagger of 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 3 years.

"But they should be aware that if repayments are not maintained then the bank won’t release the funds back on the third anniversary.

Mr Hagger also stressed that the danger with high LTV mortgages is the risk of falling house prices, meaning the borrower would be left with a high LTV balance that they can't find a lender to take.

This could mean they are forced onto a more expensive standard variable rate (SVR), or they could also fall into negative equity.

"It’s something they should weigh up – especially at the moment with the current economic uncertainty in the UK surrounding Brexit," Hagger said.

And chief executive of comparison website TotallyMoney, Alastair Douglas, said: "Rising house prices have made it extremely difficult for people to save the deposit necessary to get on the property ladder, so it’s refreshing to see this sort of innovation from a major high-street bank.

"It’s a win-win situation for those involved. The borrower gets a genuine opportunity to buy their first home, while parents can make a decent return on the 10 per cent deposit they stump up."

 

This news 36 hits received.

COMMENTS

  • 0 Comment
No comments added yet. Be the first to comment..
MAY INTEREST YOU x
JASE THE ACE Roy and Root tons power England to third biggest run chase ever in Barbados
JASE THE ACE Roy and Root tons power England to third biggest run...
DELAY, MAY... OR PAY Theresa May told to delay Brexit if there’s No Deal to halt Commons rebellion
DELAY, MAY... OR PAY Theresa May told to delay Brexit if there’s No...