The Family Springboard mortgage, available from Monday, requires the family to open a savings account linked to the mortgage into which they put 10% of the purchase price and at the end of the three years the savings are returned to the family.
Andy Gray, managing director of mortgages for Barclays, said: “We’ve listened to our customers and need to continue to drive confidence in the housing market. The new family scheme and today’s slashed rates will encourage people to think about buying or moving home which in turn will help the economy move forward.”
Gray added: “This is a real boost for UK homebuyers with small or large deposits as we are giving them access to the cheapest ever deals we’ve been able to offer brought about by the combination of the low base rate and Funding for Lending Scheme.”
The bank will be offering a 3- year fixed rate deal for those with a 30% which sees the largest cut of 1% to 2.89%. The 2 and 5-year fixed rates Barclays will be offering are priced at 2.39% and 3.39% at 60% and 70% LTV respectively.
Key reductions are also being made on the Great Escape remortgage package for those borrowers whose monthly payments were hit by competitors increasing their standard variable rate last year.
Remortgage customers can switch to a 2-year fix where the rate has been cut from 3.49% to 2.99%.
Gray said: “For existing homeowners this is extra good news as they can still look to reduce their monthly outgoings by switching to cheaper rates.”
For Family Springboard a first-time buyer purchasing a home at £160,000 would need to save a 5% deposit (£8,000) and require a mortgage of £152,000. The family will be required to put £16,000 into a Helpful Start savings account. The mortgage repayments would be £861.34 a month at 4.69% for three years (based on a 25-year repayment mortgage).
Ben Thompson, managing director of Legal & General Mortgage Club, said: "Lenders have fought so hard over recent years to attract so-called low risk borrowers as this very much suited their agenda. Since the launch of the Funding for Lending Scheme we have seen the cost of funds reduce and subsequently price competition for these borrowers has become very fierce indeed.
"However it is schemes like Barclays' Family Springboard that address perhaps the most pressing market needs and contribute to the housing market actually growing in size which is desperately needed from both a consumer and economic viewpoint."
Thompson said 95% lending hasn't become high risk overnight and historically these mortgages have performed well.
He added: "The launch of this scheme, available more widely and on more competitive terms than some might have speculated prior to its launch, will serve as a cattle-prod to other lenders that have become comfortable lending to low risk borrowers only.
"Low risk lending has become very commoditised and crowded. At some stage criteria will have to flex a little and loan to values will have to rise in order for margins and volume targets to be hit."