Lloyd's TSB 'Lend a Hand' - New FTB 95% mortgage product

blunt_crayon

Thanks Arthurian, that is interesting to know. I figured there'd be some kind of hideous penalty if you haven't reached the 90% LTV at the end of the 3 years i.e. a poor savings interest rate and a high interest mortgage rate, plus probably the savings being stuck with them for a good long time. It would be interesting to know what options you would have for re-mortgaging at the end of the 3 year fix, whether you'd be stuck on the SVR... I guess that depends on the state of the housing and mortgage market in 3 years' time though, and if I knew that... well, I wouldn't spend so much time on this forum!! Think I'll get my mum to ask her IFA about this...

SGE1

To be honest, if prices are bottoming out at the moment, negative equity after 3 years isn't likely.

Having spoken to Lloyd's about the deal, they say that 5% is the minimum deposit, but that you can put in more - and the relative then has to top it up less in the savings account. The only requirement is that the total amounts to 25% of the value of the house, with a minimum 5% deposit. As far as I understand, you could put a 10% deposit down, and your relative would only need to lock away 15% rather than 20%. That would also pretty much rule out the possibility of negative equity, and virtually guarantee that the relative would get their money back after the 3 years.

SGE1

Oh and 3.5% savings rate (which is what Lloyds will offer for the savings account) isn't that bad!

unite79

Lenders have to look at new products in a bid to get teh Market moving and to help First Time Buyers, I for 1 think this a very good solution and one that has merits in the right situation for the right people - Well done Lloyds.

blunt_crayon

SGE1 wrote: »

To be honest, if prices are bottoming out at the moment, negative equity after 3 years isn't likely.

Having spoken to Lloyd's about the deal, they say that 5% is the minimum deposit, but that you can put in more - and the relative then has to top it up less in the savings account. The only requirement is that the total amounts to 25% of the value of the house, with a minimum 5% deposit. As far as I understand, you could put a 10% deposit down, and your relative would only need to lock away 15% rather than 20%. That would also pretty much rule out the possibility of negative equity, and virtually guarantee that the relative would get their money back after the 3 years.

I had read that too and that seems a good idea. I think by this time next year my partner and I will hopefully have about 5% deposit saved, plus fees, but my mum might consider loaning us a further 5% so that our deposit would be 10%, reducing the risk of her savings getting locked away.

As Dan said, I don't think this product will be suitable for everyone but it seems good for people whose parents would have helped them with a deposit, and/or whose parents have a large amount of capital in savings accounts anyway.

Deleriad

blunt_crayon wrote: »

I had read that too and that seems a good idea. I think by this time next year my partner and I will hopefully have about 5% deposit saved, plus fees, but my mum might consider loaning us a further 5% so that our deposit would be 10%, reducing the risk of her savings getting locked away.

As Dan said, I don't think this product will be suitable for everyone but it seems good for people whose parents would have helped them with a deposit, and/or whose parents have a large amount of capital in savings accounts anyway.

Just realise that you and your parents need a 25% deposit between you so 5% from you and 5% from your parents wouldn't be enough.

Personally, if someone's in a position to get a 25% deposit together with help from their parents then they would be getter off getting a 75%LTV mortgage and remortgaging later.

E.g. If you use the Lloyds option on a 100K mortgage with you paying 5% deposit and parents paying 20% then at the end of the 42 months you have paid off £7910, paid interest equal to £14019 and your parents have earned
1750 interest after basic rate tax (I don't believe the interest is compounded). Net interest paid: 12269

If you went with the market-leading fixed rate (FD, 2 year fix at 2.99%) and you and your parents clubbed together for the deposit then after 42 months:
you repay 7446, and pay interest 7475. You could pay your parents more interest and still come out ahead when you remortgage.

Basically, this is a sub-par 75% LTV mortgage dressed up to look like a 95% one.

cjagasken

THANK YOU DELERAID for actually confirming my suspicions!!! I've just been into LLoyds to check this out. In my first time buyer naivety I thought this product looked amazing... just what i've been looking for! Here's how it read to me from there website...

for a £200,000 mortgage:
£150k + £10k (my 5%) + £40k (Parents money(20% security in savings account))=£200k

NOT

£150k + £10k (my 5%)= £160k (Parents money in the bank doesn't contribute)

So to me (and what deleraid has confirmed), this is no different to your parents lending you the savings, and then you repaying them later! The only reason i can see the parents not being willing to do this, is naivety of what this product actually is, or that you don't trust your child to pay you back!!

Shame on you Lloyds... you've just tried to confuse people into a mortgage with you!

blunt_crayon

Hi Deleriad,

Thanks for your post. When I said about my mum loaning me 5%, I meant if I had my deposit of 5% and she loaned me 5% deposit we would have a 10% deposit, with her also putting 15% in the linked savings account. The alternative would be my deposit of 5% and her 20% in the savings. Either way the same amount of money is involved, it just depends how you split the deposit and the savings. With the former, the risk of negative equity, and her savings subsequently being held to ransom by the bank, is reduced, as the capital deposit is higher.

I agree that ideally the best option is to put a straightforward deposit down on a normal mortgage. However I doubt my mum would just give me the money. I think I would be expected to pay back the loan and we would have to figure out a rate of interest and how the repayments would work. Obviously your second calculation comes out as much lower than the Lloyds one, but with the Lloyds one the money still belongs to my mum in a savings account, albeit tied to my mortgage. If I had to repay my mum 20k the repayments would work out higher, wouldn't they..?

Have you used a tool to make these calculations, or done them yourself? If there is a tool please send me the link

SGE1

Deleriad wrote: »

Just realise that you and your parents need a 25% deposit between you so 5% from you and 5% from your parents wouldn't be enough.

Personally, if someone's in a position to get a 25% deposit together with help from their parents then they would be getter off getting a 75%LTV mortgage and remortgaging later.

E.g. If you use the Lloyds option on a 100K mortgage with you paying 5% deposit and parents paying 20% then at the end of the 42 months you have paid off £7910, paid interest equal to £14019 and your parents have earned
1750 interest after basic rate tax (I don't believe the interest is compounded). Net interest paid: 12269

If you went with the market-leading fixed rate (FD, 2 year fix at 2.99%) and you and your parents clubbed together for the deposit then after 42 months:
you repay 7446, and pay interest 7475. You could pay your parents more interest and still come out ahead when you remortgage.

Basically, this is a sub-par 75% LTV mortgage dressed up to look like a 95% one.

Not really. The basic difference is that you haven't factored the repayment of the loan you would need from a relative - interest + capital.

E.g. on a 100k loan with this Lloyds mortgage, you deposit 5k, your parents 20k - they get their money back after 3 years.

On another (albeit cheaper) loan, you need to pay the (smaller) mortgage, plus reimburse your parents for the 20k you owe them. That's a lot of extra money to be paying back, and I doubt parents would be comfortable with a 25 year repayment time either.

Now, think of how many houses cost £100k. Not a lot of them. Double that, and suddenly you owe your parents 40k for a £200k house. As well as paying the mortgage.

iandvedwards

We are first time buyers and have got a mortgage in principle with Lloyds TSB for this Lend a Hand deal. Going to go through all the paperwork to check there are no other catches or risks.

Has anyone else decided to go for this Mortgage?