Get 2.5% savings rate from Lloyds Bank and help your kids onto the property ladder without a deposit - but there's a catch

28 January 2019

Lloyds Bank has launched a new mortgage that does not require a deposit from first-time buyers, as long as a family member guarantees the loan by depositing money in a linked savings account. 

The “Lend a Hand” mortgage will require no deposit from a first-time buyer, but a family member will have to put a lump sum into a three-year fixed rate savings account as a guarantee against the loan.

This will need to be equal to 10% of the loan and will be returned to them after three years, so long as the borrower has kept up with repayments.

The savings account pays a three-year fixed rate of 2.5% and must be opened before the mortgage completes.

The buyer will still be subject to the typical affordability criteria testing that will check their eligibility to take a mortgage and ability to pay it back.

The mortgage rate is fixed at 2.99% for three years and has a maximum term of 30 years. The maximum a buyer can borrow is £500,000 and there are no additional fees.

Vim Maru, group director, retail at Lloyds Banking Group, says: “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.

“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.”

How does it compare?

For the guarantor:

As far as savings rates go, 2.5% is near enough market-leading rate. The best rate on the market for a three-year fixed savings account is the Al Rayan Fixed Term Deposit account at 2.52% (which pays EPR instead of APR). Gatehouse Bank pays 2.45% and is also an EPR account.

The 2.5% offered by Lloyds Bank is practically unheard of from big high street banks these days. Your deposit will be covered up to the value of £85,000 by the Financial Services Compensation Scheme (FSCS).

However, either borrower or guarantor must be a Club Lloyds member. This means opening a current account with the bank and either paying a £3 monthly fee or paying in at least £1,500 a month.

For the borrower:

The lack of fees makes the mortgage an attractive proposition for a first-time buyer, and the rate, while a little higher than the best buy, is attractive too.

The £500,00 maximum however could irk some borrowers in the capital, where sky-high prices mean many first-time buyers will need to borrower more than this. The mortgage also cannot be used to buy new-build properties.

Andrew Hagger, financial commentator from Moneycomms, also notes a potentially big problem that the mortgage can cause for the buyer, especially under current uncertain property market conditions.

He says: “If house prices stay frozen at their current level, then after three years of repayments (on a 30-year mortgage) the borrower will be left needing a 93.5% Loan-to-value (LTV) mortgage come 2022.

“You would hope that Lloyds Bank would provide a follow-on product for such customers with such a high LTV and not leave them trapped and with no other option of moving on to Lloyds Bank standard variable rate (SVR) which is currently 4.24% and could well be higher if rates rise in the next 36 months.”

“For someone with a £150k mortgage (30 years) having to move from 2.99% to 4.24% (SVR) after 3 years would see monthly repayments jump from £630 to £725 per month.”

Lloyds is not the first bank to offer such a product. An alternative would be the Barclays Family Springboard Mortgage which works under a similar arrangement.


In reply to by anonymous_stub (not verified)

Great idea from Lloyds ... er why not from Halifax ... and a win win for everyone while the housing market is crying out for a boost. Endowed parents or grandparents moving up to £50,000 from Premium Bonds paying around 1.3% to a 2.5% pa 3yr fixed interest account will also see a material benefit and the money is safe as houses. Not quite as efficient as gifting the money outright though, if you have got it and don't need it then give it.

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