The return of the no deposit 100% mortgage, or is it?

Britain’s biggest lender, Lloyds is to offer a no deposit 100% mortgage to first time buyers in a move that sees lending at pre credit crunch levels. Potential purchasers need no deposit if family can back the loan by moving 10% of price into bank’s saver account.

The new Lloyds “Lend a hand” scheme means that first time buyers are able to borrow up to £500,000 without any actual deposit. It marks a significant expansion into the first-time buyers’ market, with most other lenders insisting upon at least a 5% deposit as a minimum. Barclays have offered a similar “family springboard” product but Lloyds have priced their mortgages to undercut the Barclays one. Lend a hand is part of Lloyds £30billion commitment to help first time buyers.

First time buyers have always complained that a lack of deposit is their biggest hurdle in owning a first home. Lloyds stated that the average deposit put down by first-time buyers has climbed to £33,211, and a staggering £110,182 in London.

Thus the Lloyds deal requires that the “Bank of Mum and Dad”, including all close relatives can help out. The bank will only grant the 100% mortgage if the family member puts a sum equal to 10% of the value of the property into a Lloyd’s savings account. Quite a unique way to encourage new customers too and Lloyds will pay a market-leading interest rate of 2.5% on the money deposited.

Group director of Lloyds Banking Group Vim Maru said: “We are committed to lending £30bn 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. 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.”

With Brexit day looming and still a lot of uncertainty regarding house prices, the deals intention is to revive the property market. Just last week estate agents Your Move said that 25% has been wiped off house prices in some of the UKs wealthiest areas leading to falls of up to £500,000 in the most extreme cases. Furthermore, the Royal Institute of Chartered Surveyors RICs said the outlook for sales is the worst in two decades.

The Lloyds’ mortgage is a 3yr fixed rate deal priced at 2.99%. During the first 3yr period, the family member who has deposited the money with Lloyds cannot access their deposits. The deal is available in England and Wales only.

This new lending deal comes not long after a surge in 10 year fixed rate mortgage deals in the wake of Brexit uncertainty. Indeed First Direct have slashed interest rates on these long term mortgage deals to as low as 2.44%. However these deals require a high large deposit often as much as 40%, so the borrowing is at 60% loan to value.

Research by Lloyds found that buying their first home remains the number one life goal for people aged 18 to 35, but half said that saving for a deposit is almost impossible. It also confirmed that 41% of parents said they wanted to help their offspring on to the property ladder.

The amount of savings held by parents with children aiming to buy a home was surprisingly high, according to the Lloyds research. It found that parents had average savings balances worth just over £43,000, or a third more than the average deposit needed.