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100% Mortgages: Lloyds Bank Launches ‘No-Deposit’ Mortgage

Carl Shave
Carl Shave
February 21, 2019
Couple Getting Keys to House

One of the country’s biggest lenders, Lloyds Bank, has launched a new product aimed at helping first-time buyers get their foot on the property ladder even if they don’t have a deposit available. The Lloyds Bank Lend a Hand Mortgage is a deposit-free mortgage that works by asking the borrower’s parents to deposit money into an interest-bearing Lloyds savings account, effectively acting as “security” for the mortgage in lieu of a property deposit.

The scheme requires parents or other family members to deposit an amount equivalent to 10% of the mortgage borrowing into a Lloyds Bank Lend a Hand Fixed Savings Account. The savings account pays a fixed rate of 2.5% gross interest, and the funds legally can’t be taken out for three years. Similarly, the mortgage deal itself is fixed at 2.99% for three years, making it easier for homebuyers to budget for their mortgage payments. Assuming the mortgage payments are kept up to date for the duration of the fixed-rate deal, the parents will get their money back at the end of the three-year term.

The new mortgage product will initially only be available in England and Wales, and as a qualifying condition at least one of the savers or borrowers must be a customer holding the Lloyds Bank lifestyle benefit current account, Club Lloyds.

Growing Demand for 100% Mortgages

Lloyds’ own research points to the growing need for such a product in the current property and mortgage market. Its surveys have shown that 43% of 18–35-year-olds agree that their biggest goal in life is to buy a house; however, half say that saving up a deposit is the single biggest barrier to home ownership. The average first-time buyer deposit is currently £33,211 – which rises to £110,182 for properties in London. At the same time, 41% of parents said that they would like to help their adult children financially, but are worried that they would need the money themselves later in life.

The History of 100% Mortgages

Prior to the global financial crisis of a decade ago, a number of UK lenders offered 100% mortgages, with no requirement for a deposit to be put down. With the collapse of the US subprime mortgage market and its subsequent effect on the lending industry worldwide, pure 100% mortgages in the UK effectively became a thing of the past in 2008-09, as lending criteria and deposit requirements became more stringent in an effort to reduce lenders’ exposure to risk.

In the years since, straightforward no-deposit mortgages have never really made a comeback. However, a number of lenders have begun offering what are effectively 100% mortgages, where additional security is taken either in the form of locked-in cash savings – as in the Lloyds Bank Lend a Hand Mortgage – or where part of the loan is secured against the equity in the parents’ home. Other lenders, such as Ipswich Building Society, offer 95% mortgages, which may be a better option for some homebuyers, including those whose families perhaps cannot afford to lock up their savings or equity to secure a full 100% mortgage.

What Does The Mortgage Centres Say?

For a few years now, this new type of 100% mortgage has been offered by other lenders under one guise or another, and you could say Lloyds is just the latest big name to hit the headlines with its new product. However, the availability of this type of mortgage can be quite limited due to its restrictive criteria, meaning it tends not to be too prolific in its uptake from would be-homeowners, whether that be first-time buyers or otherwise.

Our advice for any borrower is to take all aspects of the commitment into consideration, not just in today’s interest rate environment but also taking into account any potential interest rate rises in the future. Having a deposit should mean greater choice, and the larger this is, potentially the better the rate. However, regardless of the size of any deposit, borrowing money sensibly according to your own individual circumstances is key.

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