First-time buyers struggling to save for a home deposit could soon get on the property ladder with just £5,000 upfront under a new mortgage deal from Lloyds.
First-time buyers struggling to save for a home deposit could soon get on the property ladder with just £5,000 upfront.(Image: Getty Images )
Lending giant Lloyds is launching a new low-deposit mortgage that could help first-time buyers get on the property ladder with a deposit as low as £5,000. The new product, which is also available through Halifax and via brokers, is aimed primarily at renters who are already coping with significant regular housing costs, but who may not have financial support from the “bank of mum and dad”.
Lloyds said the gap between typical rents and mortgage payments has narrowed, meaning many renters are already paying as much each month as they would on a mortgage.
The bank said that by lowering the upfront cost to get on the property ladder, the new mortgage could reduce the time it takes to save a deposit by years for some buyers.
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The new mortgage is available for homes worth up to £300,000 and has a maximum loan-to-value (LTV) of just over 98 per cent.
People can borrow up to four-and-a-half times their salary with the five-year fixed-rate mortgage deal, which has no product fee.
The mortgage product will have an interest rate of 5.89 per cent when it officially launches on May 18.
The deal is available to both employed and self-employed applicants, who will need to pass “strict” affordability and credit checks, according to the bank.
The borrowing term is up to 40 years and the product will be offered UK-wide.
Borrowers making purchases involving shared ownership schemes, new build homes and with gifted deposits are not eligible.
Amanda Bryden, head of mortgages at Lloyds, said: “We hear time and again from those who are doing everything right – paying their bills, managing their money well, putting aside what they can – but still feel locked out of home ownership because saving a big enough deposit seems impossible.
“The reality is that many would-be buyers are already paying as much in rent as they would on a mortgage.
“By cutting the upfront cost to £5,000 we’re breaking down a major barrier to getting on the property ladder. This gives people a better chance to own their first home and start building a more secure future.”
Lloyds said the average first-time buyer is aged 32 – two years older than a decade ago – as the increasing cost of rents and rises in living costs have made it harder to save.
Several other lenders offer low or no-deposit mortgages, helping to give first-time buyers a step onto the property ladder.
In February, Santander UK launched a mortgage which requires a minimum deposit of £10,000.
Skipton Building Society also offers mortgages with low to no deposit options.
Andrew Montlake, chief executive of Coreco mortgage advisers said: “This is a genuine shot in the arm for aspiring home buyers, especially those who don’t have the luxury of the bank of mum and dad behind them.
“For many would-be buyers, the issue is not whether they can afford the monthly mortgage payments or whether they have a good credit record.
“The real mountain to climb is saving a big enough deposit while rents, bills and everyday living costs continue to take a hefty bite out of their income.
“There are already some decent low-deposit and even 100 per cent mortgage options out there, but when one of the UK’s biggest lenders puts its weight behind this part of the market, it matters.
“It sends a message of confidence and gives more borrowers a realistic route onto the housing ladder.”
David Hollingworth, associate director at L&C Mortgages said: “This new launch is significant as it marks another major high street lender developing solutions for those with a small deposit.
“We’ve seen a growing range of lenders in this space, designing products that could significantly speed up the journey to home ownership.
“There are now several deals where it could be possible to borrow more than 98 per cent of the purchase price or even require no deposit at all.
“This will help those that have good affordability but are being held back by the need for the traditional deposit of 5 per cent or more.”
Speaking generally, Mr Hollingworth said smaller deposits can mean a higher risk of buyers falling into negative equity.
This can happen if house prices fall and the amount owed is bigger than the value of the home.
But he added: “That only becomes a problem where the property needs to be sold, which would crystallise a loss.”
