Its new Lend a Hand mortgage is designed to help first time buyers onto the property ladder. Since the onset of the credit crunch there has been a scarcity of mortgage products available to those with small deposits and those that are available have been priced at a premium. This has precluded many would-be first time buyers from purchasing their first home, which in turn has exacerbated the downturn in the housing market.
What's the deal
Lloyds TSB's Lend a Hand mortgage has a rate of 4.39%, which is fixed for three years. There is a £995 arrangement fee and the deal is available for loans up to 95% of the property's value. However, while the first time buyer only needs to put down a deposit of 5%, his or her parents, grandparents or friends, must set a further 20% of the property's value against the loan.
So, on a property worth £100,000, the first time buyer would be required to put down a deposit of at least £5,000 and be able to get a mortgage up to £95,000. However, an additional £20,000 would have to be put in a linked savings account by a friend or family member.
Many parents are likely to see this as a good way of helping their child onto the property ladder as it enables them to give financial assistance to their son or daughter without losing ownership of their savings. The money will be held in a savings account which will pay a fixed rate of 3.5% for three and a half years. No withdrawals are permitted during this period and a legal charge - or guarantee - is held against the money in the savings account.
You can ask for the charge to be released at the end of three-year fixed rate period, as long as you have built up a 10% equity stake in the property. This means the value of the property will have to rise by 5% or you will have to over pay on the mortgage to build up capital.
This effectively reduces the risk to Lloyds TSB because in the event of the property being repossessed, the bank's exposure to that property would be just 75% of the original value rather than 95%.
Will it make a difference?
The decision by Lloyds to launch this product is great news for those who have been struggling to get onto the property ladder. The rate of 4.39% is highly competitive - the average rate on loans available up to 95% is 5.56% - so it is likely to prove highly popular. And with Lloyds having upped the ante in this arena, we will hopefully see other lenders improve their offerings in the coming weeks and months. In turn this could help kick-start the housing market which will help others trying to buy or sell a home.
However, there are obviously limitations with the new Lend a Hand mortgage as only those with family or friends in a position to help financially will be able to benefit. That said, if you are fortunate to have someone to turn to for financial support it is a product well worth considering.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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