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29 Jan 2019

Lloyds Bank launches 100% mortgage: how does it work?

High-street lender offers new deal allowing first-time buyers to partner up with parents

First-time buyers can borrow up to 100% of a property's value, provided their family can put down some money as security, with a new mortgage deal from high-street giant Lloyds Bank.

The days of getting a 100% mortgage without some additional security have long passed, but an increasing number of lenders now offer ways for people to get onto the property ladder without saving for a deposit.

Lloyds Bank joins Barclays, Post Office Money and other providers in offering such a solution. The Lloyds Lend a Hand mortgage requires a family member (or family members) to deposit their savings, which must be equivalent to 10% of the property's value, as security.

Find out how this new mortgage deal works, how it compares with other similar mortgages, and what the alternatives to a family mortgage could be.

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Lloyds Bank's new 100% mortgage

The Lend a Hand mortgage allows first-time buyers to borrow 100% of a property's value. Their family must deposit the equivalent of 10% of the property's value in a Lloyds Bank savings account, which pays 2.5% AER.

The savings will be locked up for three years, and cannot be withdrawn during that period. Lloyds will have a legal charge on the money until the three years are over.

At least one person involved - either the borrower or saver - must have a Club Lloyds current account.

You could also qualify for £500 cashback on your mortgage, as well as £300 towards legal fees.

The maximum mortgage that can be borrowed is £500,000, and the deal is only available in England and Wales. The maximum term you can borrow for is 30 years.

Borrowers will take out a three-year fixed-rate mortgage, with interest charged at 2.99% APR.

How does Lloyds' 100% mortgage compare?

Barclays and Family Building Society offersimilar types of guarantor or family mortgage.

Barclays' Family Springboard mortgage charges 3% APR and allows you to borrow 100% of a property's value. The saver's money is again held for three years, earning 2.27% AER, slightly less than Lloyds.

Family Building Society works slightly differently. It willlendup to 95% of a property's value, requiring a 5% deposit from the borrower.But families can contribute their savings to a separate savings account, currently paying 1.15% AER, which it says will secure the borrower a lower rate of interest than they could get from a 95% loan-to-value mortgage.

It charges 2.99%, fixed for three years. However, that's the same cost as the new Lloyds Bank deal, with worse rates for the guarantor, so not as attractive as it first appears.

Would I be better off getting the money as a gift?

If you wanted to borrow £250,000 over 30 years, the Lloyds Lend a Hand deal would mean monthly mortgage repayments of £1,052.

However, it's not the cheapest 90% mortgage deal on offer at the moment. According to data provider Moneyfacts, the cheapest nationally available three-year fix is on offer from HSBC, charging 2.35% APR.

This deal would reduce your monthly repayments to £968, saving you more than £3,000 over the term of the mortgage.

So if a family member was willing to gift (or loan) you the £25,000 needed for a deposit, you could make a significant saving on a cheaper mortgage.

But Lloyds' deal isn't necessarily designed for people in this situation. It offers families who can't afford to give their money away a chance to help their loved ones buy a property, while also earningan inflation-busting return on their savings.

There is currently only one three-year fixed-rate savings account that pays more than Lloyds Bank - Al Rayan Bank's 36-month account, which pays 2.52% expected profit rate. (The link takes you through to Which? Money Compare, our savings comparison service.)

Other types of 100% mortgages

Family deposit mortgages aren't the only way for family members to help first-time buyers out.

Traditional guarantor mortgages see parents or grandparents using their property as security to help a first-time buyer purchase a property without a deposit.

Both family member and borrower become responsible for the mortgage repayments, and a legal charge is put on the property used as security.

Newer versions of these deals, such as the Family Link mortgage from Post Office Money, allow a family member's home to be used as security against a loan for 10% of the property price, allowing the buyer to borrower 100% of the cost of their first home.

With family offset mortgages, parents or grandparents put their savings into an account linked to the homebuyer's mortgage.The amount in theaccount is deducted from the amount of the loan that you pay interest on, and the guarantor can get their money back in full when you've paid off 20% to 25% of the loan.

Find out more in our guide to guarantor mortgages.