Lloyds TSB launches 95 per cent LTV mortgage

By Nia Williams

21 May 2009

The three year product, called ‘Lend a Hand', offers first-time buyers a 95% loan to value (LTV) mortgage at 4.39% by taking a legal charge on a savings account belonging to their parents.

The legal charge means the parents retain ownership of their savings while earning a competitive fixed interest rate of 3.5%. It also lets Lloyds TSB lend to customers with less of a credit footprint, a common reason why many first-time buyers fail to qualify for a higher loan to value mortgage.

Using the example of a £100,000 property:

A 95% LTV mortgage of £95,000 is provided by Lloyds TSB at a three year fixed rate of 4.39% with a £995 fee. This is equivalent to Lloyds TSB's best current 75% LTV rate.
£5,000 is provided by the first time buyer as a deposit for the property
£20,000 is provided by parents, grandparents or friends and held in the Lloyds TSB ‘Lend a Hand' savings account earning a fixed rate of 3.5% for 42 months.
The combination of the contribution by the parents and the first time buyer must equal 25% of the property's purchase price; of which the first-time buyer must provide a minimum of 5%.

At the end of the deal, if the combination of mortgage repayments and rising house prices has moved the mortgage from 95% to 90% LTV, the legal charge on the savings account can be removed and the first-time buyer can operate their mortgage account independently, either on Lloyds TSB's standard variable rate, by switching products or remortgaging.

Stephen Noakes, commercial director of mortgages at Lloyds Banking Group, said: "First-time buyers are essential to returning the housing market back to good health because every first-time buyer helps, on average, four other households move. As the UK's largest mortgage lender we're committed to help first-time buyers onto the housing ladder and this includes finding innovative ways to lower the first rung so that it is within reach for more people.

"Market conditions mean virtually no 95% loan to value mortgages are available at the moment, while the few that are come at a high price with stringent credit requirements. The legal charge on the parents' savings account means we can offset the risk of lending at this level to offer a realistic and affordable option for first time buyers. It also gives parents a way of helping their children without actually having to write the cheque."

Figures show that parents and grandparents are keen to help their children get on the housing ladder. According to the CML, 38% of homeowners under the age of 30 had financial help from their parents while the average assisted deposit was £35,000.