Lloyds Bank launches no deposit mortage for first-time buyers – but there’s a catch

First-time buyers are to be given a helping hand onto the property ladder, as Lloyds Bank launches a new mortgage scheme which doesn’t require a traditional deposit.

Wednesday, 6th February 2019, 08:17 am
Updated Thursday, 7th February 2019, 16:50 pm
Lloyds bank( LEON NEAL/AFP/Getty Images)

Lloyds’ new ‘lend a hand’ mortgage helps young people by eliminating the most difficult aspect of owning their own property by eliminating the need for a deposit. 

But, there is a catch. 

Lloyds bank( LEON NEAL/AFP/Getty Images)

The scheme means parents (or other family members) will need to put money into a savings account to help their children buy their first home.

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However, mum and dad will eventually get their money back.

How does it work?

The mortgage requires parents or carers to contribute the equivalent of 10 per cent of a loan for a property as security into a savings account.

This savings account will pay 2.5 per cent interest and, after three years – as long as the mortgage repayments are kept up-to-date – those who loaned the money will get it all back.

By putting money into a savings accounts, this enables first-time buyers to access a three-year fixed mortgage at 2.99 per cent.

The savings account must be funded before the mortgage is completed and parents must be able to lock away their money for the full three-year period.

The new deal will initially be available in England and Wales, and at least one of the borrowers or savers must be a Club Lloyds customer to be eligible for the scheme.

Breaking financial barriers

Almost half (43 per cent) of 18 to 35 year olds say their biggest life goal is to buy a house, but saving for a deposit is the biggest barrier.

Meanwhile, two-fifths (41 per cent) of parents say they would like to help out financially but are concerned they will need the money in later life, Lloyds’ research suggests.

Across the UK, the average deposit for first-time buyers is £33,211, rising to £110,182 in London.

Other deposit-free mortgages

Lloyds is not the only bank to launch a unique help-to-buy scheme, with other lenders also offering similar innovative mortgages to first-time buyers which do not require borrowers to put down a deposit.

Barclays boasts a family springboard mortgage, which offers a three per cent mortgage rate for three years at 100 per cent loan-to-value.

Under this deal, the deposit savings from buyers’ parents equates to 10 per cent of the purchase price, which is placed into a ‘helpful start’ account.

The Barclays account currently pays a 2.25 per cent interest and, just like the Lloyds deal, the savings are later returned to the parents.

First-time buyer deposits

These are the average first-time buyer deposits across the UK, according to estimates from Lloyds Bank, using UK Finance figures:

North East – £17,085

Yorkshire and Humberside – £19,871

North West – £21,495

East Midlands – £24,853

West Midlands – £26,494

East Anglia – £36,714

Wales – £16,638

South West – £37,060

South East – £52,204

London – £110,182

Northern Ireland – £17,925

Scotland – £19,877