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Return of the 95% mortgage... but you will still be living under mum and dad's roof
Jonathan Prynn20 May 2009
A major high street lender is offering a 95 per cent mortgage for the first time since last year's financial collapse - but only to borrowers heavily backed by “Bank of Mum and Dad.”
Lloyds TSB's three year fixed rate of 4.39 per cent is by far the cheapest 95 per cent deal on the market and is aimed at first time buyers.
The “catch” is that the borrower's parents must deposit 20 per cent of the loan's value in a Lloyds savings account bearing 3.5 per cent. The money will be claimed by the bank if the buyer defaults on payments.
After three years the parental funds can be withdrawn again, but only if the loan is then worth 90 per cent of the value of the property or less.
Stephen Noakes, commercial director of mortgages at Lloyds Banking Group, said:”Market conditions mean virtually no 95 per cent loan to value mortgages are available at the moment, while the few that are come at a high price with stringent credit requirements.
“The legal charge on the parents savings means we can offset the risk of lending at this level to offer a realistic and affordable option for first time buyers. It also gives parents a way of helping their children without actually having to write the cheque.” The loan has an upfront £995 fee.
Dozens of lenders were offering loans at up to 100 per cent - and in some cases even higher - before the credit crunch. But last Autumn's banking crisis and the property collapse it triggered meant they virtually all disappeared.
There are currently only five deals on the market at 95 per cent LTV or above. One from Bank of Northern Ireland is only available in the Province and two others from Tipton & Closely building society only in the Midlands.
Those from Clydesdale Bank and Yorkshire Bank have an expensive 6.99 per cent interest rate.
Lloyds is currently 43 per cent owned by the Government and has pledged to do more to help make funds available to buyers as a condition of its rescue from the taxpayer.
Its deal, called the “Lend a Hand” mortgage, was given a warm welcome by experts.
Andrew Montlake, director of mortgage broker Coreco said:”While there are a few conditions to this product, they are far outweighed by the positives. It is an exceptional rate and assuming parents still have some spare cash floating around will be a major fillip for certain first time buyers and there fore the market as a whole.
“What's clever about it is that you can raid the Bank of Mum and Dad without leaving them high and dry - it's about using capital rather than using it up. It's effectively a 75 per cent mortgage parading as a 95 per cent loan.”
Darren Cook of price comparison website Moneyfacts said:”Until the property market stabilises, there is no appetite for mortgage providers to offer mortgages at 95 per cent loan to value levels, which is frustrating for first time buyers who want to take advantage of a buyers market to get on the ladder.
“Most providers are offering a 25 per cent deposit requirement at best and the only option for many is being fortunate to able to knock on the door of the bank of Mom & Dad.”
Reader views (10)
Should the government not control their taxpayer-paid-for banks?
- Jacqueline, Hampstead, London, 20/05/2009 23:10
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It's important to note that retail banks are mass advertising to get consumers cash but doing very little to kick-start lending to consumers in the form of mortgages. In the short term, it looks like retail banks could be in trouble since they're only receiving 0%-3% interest on approx. 50% of their mortgages - trackers, and need to pay interest of between 3%-5% on savers deposits. I reckon that retail banks would have to ratchet up the mortgage lending before the end of 2009 or they would have a liquidity problem when they publish their final accounts (i.e. they would have interest payment obligations with no cash to pay it with) and may need to be rescued by the taxpayers again. My guess is you can expect desperate measures from retail banks in the form of 95% mortgages at interest rates over 6% as they attempt to square off their balance sheet obligations before the year end. Also, the BoE base rate is not going anywhere – i.e. they will remain low, so expect the bank to give you some bull like ‘lock in a good fix rate now because rates may go up in the near future’. Consumers should hold there nerves until December 2009 and watch the retail banks fall on their own swords!
- Douglas, London, UK, 20/05/2009 16:03
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Will Lloyds take HBOS shares as collateral....at the last shareholders' Rights issue value? If not, why not? They should have that much belief in their own company as security....
- Francis Salvesen, London UK, 20/05/2009 14:57
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Is Lloyds TSP not a Crash Gordon state bank?
- Moy, London, 20/05/2009 14:36
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The banks have a license to print money. They take no risk whatsoever yet want a massive return and almost unlimited security. At the same time, they use this money to gamble and if they lose we all pay. If they win, we get nothing. We need a new banking system that is not charging usary rates and acts not just in the best interests of the banks. Best thing that can happen is that banks get no new business and go out of business. The current cartel is doing nothing for UK business or UK citizens. Time to fundamentally restructure the banks to be meaningful institutions doing something useful for our society.
- Stephen, Swindon, UK, 20/05/2009 14:35
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I think it is a clever offering by Lloyds and given how far most properties have fallen and are now affordable by first time buyers for the first time in 10 years. This is a good time for a first-time buyer to buy as long as you are buying for 5 years or more and can get a low fixed mortgage deal for say 5 years (the hard bit is having a secure job!).
- Jim, london, 20/05/2009 14:29
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Way to go re-inflating the credit bubble.
- Ross, London, UK, 20/05/2009 14:22
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As a father, I find that interesting. Can I haz 3.5% nowadays? Nice piece of 'product' design, although one would have to read the small print. I'd take a punt on property prices to get the sprogs away.
- Steve, London, England, 20/05/2009 14:19
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So let's see if I understand this. I buy a £100k house today and I have to pay a £5k deposit and a £995 arrangement fee and within three months at the present rate of house price falls (quicker if you include the £995) I will be in negative equity by September assuming I bought the house for exactly what it was "worth" today.
What sort of moron is going to do that when they can rent for a whole year for that same three months loss of equity and not expose themselves to additional losses in the nine months after September? This market has a long long way to fall before it reaches the level it was in 2,000 when arguably it was at the right level.
As with swine flu epidemic in 1918, so with the housing market, the system takes a couple of small bites out of you before you face the big one. The only people saying house prices have stabilised are estate agents and solicitors both of whom have everything to gain from peddling such lies and absolutely nothing to lose, unlike the poor mugs they manage to convince.
And of course this time Lloyd's TSB give themselves a bit of headroom to decide when to boot you out and sell the property off cheap and leave you and your parents with even more negative equity as prices inevitably continue downwards .
- John, Aberdeen, UK, 20/05/2009 13:10
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its pretty clear that the banks are expecting further falls in house prices then!
- Louisa, london, 20/05/2009 12:51
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