The mortgages media is full of news about the latest offering from Lloyds TSB as the first major mortgage lender to venture once again into the 95 percent mortgage market, but is it all just a clever ruse?
The new mortgage product is called ‘Lend a Hand’, which is a lovely, warm and friendly product name. The marketing hype is all about how Lloyds TSB is helping first time buyers into the marketplace by allowing them to place just a 5 per cent deposit. The interest rate is fairly attractive at just 4.39 percent and the mortgage is fixed for three years, so all sounds fine and dandy. But, there is a catch.
The catch is that on top of the 5 percent deposit from the first time buyer, the bank also requires an additional 20 percent deposit on top, from the buyer’s parents, that must be deposited in a savings account at the bank. The savings account is fixed for three and a half years – so a six month overhang on the mortgage, cleverly done so that if the buyer chooses to mortgage away, that 20 percent extra cannot be taken and used elsewhere. The only decent thing about this part is that the interest rate on that 20 percent deposit is fixed at 3.5 percent. There are slightly better rates available at the moment on that sort of fixed length savings, but the rate isn’t too far off the mark.
One thing for parents to note is that Lloyds will take a legal charge against their money, although that will be released once the loan to value reduces to 90 percent.
So, is it a good deal?
In our opinion, yes we think so providing everyone understands the implications of what they’re getting involved with. There are still other 95 percent deals out there, but the interest rates on those mortgages are much higher so it would pay for the child to take out this mortgage – if mummy and daddy don’t mind acting as guarantor and tying up their dosh.