Innovative 95% mortgage from Lloyds TSB

Lloyds TSB’s (LON:LLOY) have announced a new 95% LTV mortgage product which requires a 5% deposit. By doing so it has claimed the distinction of being one of the few High Street lenders to offer such a high LTV home loans in these difficult times.

In these hard economic times, with virtually no banks offering a 95% loan to value mortgage, Lloyds TSB’s Lend A Hand mortgage scheme is a crucial step in encouraging other lenders to come out of their shells and will help attract first time buyers back into the marketplace.

LLoyds TSBFor approval of Lloyds TSB’s Lend A Hand mortgage, a pre-requisite is to the holding of 20% of the mortgage value in a fixed savings account with Lloyds TSB. This feature benefits young buyers who can make use of their parent’s or other relatives’ savings to augment their deposit. While the savings will have to remain fixed for three years, Lloyds will maintain a hold on the amount until the homeowner has made enough payments to earn 10% in equity.

Freeing the deposit will involve the repaying of 5% of the property’s value over a period of three years. This won’t be required if the value of the property automatically increases by 5% within that time frame. However, going by current trends, hoping for an increase in value might not really be the best solution in the short term with house prices continuing to fluctuate in many areas.

A prospective homeowner looking to buy a house worth £150,000 then would have to pay out £999 for the application and make a deposit of £7,500. Lloyds TSB would then make available the remaining 95%, charging customers an interest rate of 4.39% per annum. A loan for that sum would also call for the depositing of £30,000 by a family member or friend into a Lloyds TSB savings account. The monthly repayment would amount to approx £783.

Stephen Noakes, the Commercial Director of mortgages at Lloyds Banking Group pointed out the benefits to be had for all concerned from the legal charging of a family member’s savings account to “offset the risk of lending at this level” and “to offer a realistic and affordable option for the first time buyers.”
He further stated that it was an effective method that allows parents to help their children “without actually having to write the cheque.”

Andrew Hagger of comparison site, said the product “should be applauded”. “Many parents will want to do all they can to help their children buy their first property, and the terms of the policy are likely to prove popular with parents who have sufficient capital to lock away for at least 42 months,” he said.

David Smith, a senior partner at Carter Jonas estate agents said in response to Lloyds TSBs latest announcement: “Slowly but surely, lenders are coming out of their shells and it bodes well for the market as a whole.” “If funding is there, in whatever shape or form, it will bring proceedable buyers ready to proceed back into the market and that is crucial,” he further added.

Good news from the Council of Mortgage Lenders last week emphasized this change for the better when it informed the public of a 29% increase in mortgage lending to people buying homes during the month of March.

Adding to this was the statement from the The Royal Institution of Chartered Surveyors which said that the inquiries from prospective buyers rose at the fastest rate in a decade during the month of April.

It is true that this product will not be suitable for all with the requirement of the saving account which will provide increased security and lessen the risk to LLoyds TSB. However, it is new mortgage product with attractive interest rates in the current financial market and shows innovative thinking from the LLoyds TSB banking group which must be commended.

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