Lender mortgage schemes for first-time buyers

Lender mortgage schemes for first-time buyers

Getting a foot on the property ladder is a milestone in anyone’s book. Unfortunately, though, the high cost of housing in the UK means that young people have to wait longer and longer to own their own homes.

The average age of a first-time buyer who has received no financial help from relatives or friends is now 35 – mainly because it takes years to save up the 5% to 10% required as a minimum deposit.

The high interest rates paid by borrowers with small deposits, of say less than 25%, also make it difficult to achieve that first home dream.

However, the good news is that certain lenders, such as the newly-rebranded Lloyds Bank, offer specialist mortgages designed to help cash-strapped first-timers, while some mainstream mortgage deals are also still available to people with just 5% to put down.

The government’s Help to Buy scheme also allows you to access mortgage interest rates reserved for borrowers with a deposit of at least 25%, even if you only have 5% of a property’s value in savings. You can find out more about Help to Buy, which is open to homemovers as well as first-time buyers with our guide, Help to Buy explained.

In September 2013, there were 23 lenders that offered straight 95% deals, according to the MoneySuperMarket data team including Newcastle, Leeds and Nottingham building societies.

Mortgage schemes for first-time buyers

Here, we take a closer look at the specialist first-time buyer mortgages available and how they work, as well as the standard mortgage deals which only require a small deposit.

Lloyds Bank: Lend a Hand

Lloyds Bank Lend a Hand mortgage is available to first-time buyers with a deposit of at least 5% who have a friend or family member – known as a ‘Helper’ – willing to put up savings of a further 20% of the property value. 

As the required sum of the two amounts is 25% of the asking price, a buyer with a larger deposit of say 7% of the asking price would only need the person supporting them to put up 18%.

The Helper, who is required to hold their savings with Lloyds for 42 months (3.5 years), will still earn interest on their savings at a fixed rate annual interest rate (AER) of 2.70% but will not be allowed access to their cash during that time. 

But, because of the added security the savings provide, the first-timer benefits from cheaper interest rates. The rate on the Lend a Hand mortgage, which is fixed for three years, is 4.2%, although you might be offered a better rate if you have a Lloyds current account. The maximum mortgage under the scheme is £350,000.

Barclays: Family Springboard Mortgage 

Like Lend a Hand, the Family Springboard mortgage from Woolwich – the lending arm of Barclays – allows a first-time buyer’s relatives to leverage their savings to help them buy a home.

But while the first-timer will need the same minimum deposit of 5%, the relative only needs to stump up a further 10% of the purchase price which will be paid into the bank’s Helpful Start account. This pays interest of base rate plus 1.50% which will be fixed for three years. After that time, the saver will be their money back with interest – so long as the buyer has kept up with their mortgage repayments.

As your deposit is now effectively 15%, you will get access to a lower mortgage rate than you would taking a straight 95% mortgage deal. Woolwich's two Family Springboard mortgages deals are both priced at a fixed rate of 4.69%, also for three years. The maximum loan available under the deal is £500,000.

Yorkshire Building Society: Offset Plus deal

Yorkshire Building Society (and its sister lender, Chelsea Building Society), also enable first-time buyers’ family and friends to help them get on to the property ladder by stumping up some cash – but under this arrangement they will retain access to it via an offset mortgage. 

A regular offset mortgage works when the homebuyer puts their savings in a linked account with the bank. This cash is then offset against the debt of their mortgage. For example, if you had a mortgage of £150,000 and £50,000 in savings, you'd only pay interest on £100,000. 

But with the Yorkshire/Chelsea Offset Plus deal, the helper will link their savings to your mortgage instead of you. Their cash will be kept in a linked account (which will be in their name) which they can access when they want to. The benefit to the homeowner will increase and reduce in line with the savings balance. 

The helper will forego interest on their savings under this arrangement but, as well as helping the first-timer buyer, it also means they won’t pay any tax on the interest either – a particular saving if the helper is a higher rate taxpayer.

The downside for the first-time buyer is that, if your helper takes out their savings, your effective mortgage rate will go up.

The Offset Plus facility, which is available on all the Yorkshire/Chelsea’s regular offset deals, are priced around 0.20% higher than the non-offset versions. 

Straight 95% mortgage deals

While the most competitive mortgage interest rates are reserved for borrowers with deposits of at least 40%, there are still some banks and building societies willing to lend up to 95% of a property’s value – even without the help of friends or family.

In September 2013, there were 23 lenders that offered straight 95% deals, according to the MoneySuperMarket data team including Newcastle, Leeds and Nottingham building societies.

The upside to these mainstream deals is that there's no government contribution to pay back, and you don't need to find a friend or family member with the cash to back your application.

The downside, however, is that the interest rates charged on straight 95% mortgage deals will be considerably higher than on the schemes like the above, which can result in hundreds of pounds extra a month on your mortgage repayments.

You can compare 95% deals here.

If you need more information, contact our mortgage partner, London & Country, for free, independent advice on 0844 209 8725.

Save to Buy Mortgages - Ordered by lowest initial rate

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