Lloyds TSB Launches 95% LTV “Guarantor” Mortgage

21-May-2009

High street lender Lloyds TSB announced on Wednesday 20th May that it is offering a 95 per cent loan-to-value mortgage, named the 'Lend a Hand' mortgage, to encourage first-time buyers onto the property ladder.  However, this deal is not what you would normally expect from a 95 per cent loan-to-value mortgage, in that you would still need to get hold of an additional 20 per cent before the deal can be approved.  The mortgage agreement requires that this 20 per cent comes from friends and family of the borrowers (up to two people), and that it is held in a Lloyds TSB account for 42 months at an interest rate of 3.5 per cent.  If you were to buy a property for £100,000, you would have to provide a deposit of £5,000 and pay a product fee of £995.  For Lloyds to provide the remaining £95,000, you would also have to show that someone else had placed £20,000 in a dedicated Lloyds TSB account, and that they would be prepared to tie this sum of money to the mortgage for a total of 42 months. 

From the point of view of Lloyds, it is committed to providing a home mortgage loan equal to 95 per cent of the value of the property, but the onus is on the borrower to ensure that they have financial backing equal to 75 per cent of the purchase value of the property.  Effectively, this is a 'guarantor' mortgage, since the bank is asking that parents or other close family and friends vouch for the borrower's financial security.   The advantages of this deal are that the supportive parents will still see a fairly competitive interest rate on their savings, and that the three year fixed rate mortgage deal of 4.39 per cent, after which time the rate reverts to Lloyds' standard variable rate, compares favourably with the few 95 per cent LTV deals already in existence in the market.  The downside is that, for all intents and purposes, the offer is for a 75 per cent LTV mortgage, so if you are unable to get the capital together through friends and family, you will not be eligible.  Another caveat is that you are encouraged to start repaying the loan straight away, rather than using the 'interest-only' plan typically popular with first-time buyers.  If the loan-to-value remains at 95 per cent by the end of 42 months, the cash in the savings account remains under lock and key until 5 per cent of the loan has been repaid.   Conversely, early repayment charges do apply, so it doesn't pay to pay it back too quickly.

This deal is a step forward for first time property buyers with low deposits and helpful families with savings, since it gives them access to competitive rates that would usually only be available to buyers with substantial deposits.  If you did have a larger deposit available, your 'Helper' could put a proportionally smaller sum into the savings account.  The deal enables you to borrow up to £350,000 towards the value of a property, and with the drop in property prices in the last few years this accounts for a decent percentage of the UK property market.  We would always recommend that you and your financial helpers take independent financial advice before proceeding with this, or any other, mortgage deal to ensure that you are aware of all the costs and conditions involved.

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