Britain’s biggest lender Lloyds has unrolled its ‘Lend a Hand’ mortgage loans which offers 100% mortgages for first time home buyers. The new plan will return the lending scene to pre-2008 financial crisis times. However the lending will be available for those with family backing.
Under the ‘Lend a Hand’ scheme first time buyers can avail up to £500,000 for a new home, without depositing any money. The Lloyds deal requires any family member of the buyer to deposit up to 10% of the value of the property in the savings account with Lloyds. Lloyd in return offers market leading interest rate of 2.5% on the deposited amount which will be returned after three years. The deposit can’t be withdrawn before the three year period. The deal also offers a fixed interest rate of 2.99% to the home buyer for the first three years which will help in monthly budgeting according to Lloyds.
The deal undercuts another such deal offered by Barclays for first time home buyers called ‘’Family Springboard deal’’ which requires a deposit of 5% of the property purchase price. Lloyd claimed that the deal is £30bn to first time buyers. This will add to the concerns about the banking industry’s modus operandi where only people from well-off families can afford to buy a home of their own.
The deal is structured in a way that the ‘’bank of mum and dad’’ can help their children out to buy a home while also ensuring they retain control over their cash saving which they will need later in life. Group director of Lloyd Banking Group Vim Maru said that they have committed over £30bn lending to first time buyers by 2020 as part of their pledge to help communities and people across Britain to find prosperity and the ‘’Lend a Hand’’ deal is one way to do that.
The deal also aims to revive the demand in housing market which has been stagnating recently thanks to looming uncertainty over the Brexit. Brexit has alarmed buyers to hold onto their cash savings and delay investments plans in fear of impending job losses and an economic slowdown. Estate agency Your Move reported a reduction in housing prices by over 25% in some the wealthiest areas in the UK. Meanwhile RIC, the surveyor’s body reported it expects worst outlook for housing sales in last two decades.
The Lend a Hand deal will threaten long term mortgage deals where a fixed interest rate as low as 2.44% is offered with no upfront fees for 10 years, however the buyers have to deposit as good as 40% of the value of property. The Lloyds deal will be immensely attractive for people who have no means for initial deposit. Lloyds research found that people aged between 18-35 have a number one life goal which is to own a house. The study also found that 41% of parents showed willingness to help their children to buy a house but feared that they might lose their retirement money.