Lloyds Bank launches new mortgage with NO deposit – but your parents must sign up 10% of their savings

But as a perk for lending the cash, the new "Lend A Hand" mortgage from Lloyds Bank will pay family members 2.5 per cent in interest on the money they deposit.

The three-year mortgage, which is available to borrowers in England and Wales needing an up to 100 per cent loan, is fixed at 2.99 per cent.

It's available on mortgages of up to £500,000 over a maximum period of 30 years.

There's no fee and you can also bag £500 cashback once you've completed, plus an additional £300 to help cover legal costs – although the cashback offer can be withdrawn at any time.

But be warned that you can't take the mortgage with you if you move; so you need to be sure you're going to stick in your new home for at least three years or know you can repay the entire mortgage in that time.

You also need to be aware that if you miss your mortgage payments, the bank can take the cash from the 10 per cent "deposit" your family member has stumped up.

How does the mortgage work?

How it works, is that the family member who stumps up the effective deposit sets up a savings account with Lloyds Bank and pays in the cash before you apply for a mortgage.

It is then held as additional security for the loan earning 2.5 per cent interest.

After the three years, whoever helped you with the savings funds will be refunded their 10 per cent plus interest.

To be eligible, at least one of the borrowers or savers must be a Club Lloyds current account customer. If you're not one already, you can join before you apply for a mortgage.

The "no deposit mortgages", which often means a family member is brought in as a guarantor to get around tough restrictions, used to be really common.

But after the financial crisis 10 years ago, lenders started to withdraw these types of home loans from the market.

Now, more and more lenders are launching such deals, with Barclays and the Post Office offering them again as of last year.

Following news of the launch, Vim Maru, group director of retail at Lloyds Banking Group, said: "We are committed to lending £30billion to first-time buyers by 2020 as part of our pledge to help people and communities across Britain prosper – and Lend a Hand is one of the ways we will do this."

How do you find the best mortgage deals?

Websites like Moneysupermarket and Moneyfacts have mortgage sections so you can compare costs and all the banks and building societies have their offers available on their sites too.

If you're getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, who will help find the best mortgage for you.

A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.

You'll also have to decide on if you want a fixed-deal where the interest your charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.

Remember, that you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks, and looking at your credit file.

You may also need to provide documents like utility bills, proof of benefits, your last three month's payslips, passports and bank statement.

And while you might be tempted to get a mortgage without a deposit, they tend to be more expensive than other deals, so you could be better off saving up instead.

You can check out our guide to the best first-time buyer mortgage deals here.

Is the mortgage a good deal?

Rachel Springall, finance expert at Moneyfacts, said the savings rate at 2.5 per cent is "table topping".

She said: "The brand new Lend a Hand mortgage from Lloyds Bank has been competitively priced and will no doubt grab the attention of first-time buyers looking to get on the property ladder.

"Those borrowers with little to no savings for a deposit will no doubt be struggling, while their parents may well want to help their children get their first home but are hesitant to relinquish their hard earned savings.

"So a guaranteed fixed return for three years at a fantastic return will no doubt be enticing."

Barclays Family Springboard mortgage, is another similar mortgage. Its rate is 0.01 per cent higher than Lloyds Bank’s deal.

Again, parents deposit the 10 per cent into its Helpful Start Account, which currently offers a lower rate of savings interest at 2.25 per cent, and this cash is then returned after three years.

The Barclays deal comes with a maximum term of 25 years, compared to Lloyds Bank's 30 years.

This mean you'll have higher monthly repayments but you'll pay less over the term.

Miss Springall said: "Therefore, borrowers looking to reduce their monthly repayments will find the Lloyds Bank deal very accommodating, but they must be mindful that the longer term mortgage they get, the more interest overall it will cost."

What help is out there for first-time buyers?

Help to Buy Isa – It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move.

Help to Buy equity loan – The Government will lend you up to 20 per cent of the home's value – or 40 per cent in London – after you've put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.

Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.

Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific ones.

"First dibs" in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.

Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the Starter Homes website.

Meanwhile, chief executive of comparison website TotallyMoney, Alastair Douglas, said: "Rising house prices have made it extremely difficult for people to save the deposit necessary to get on the property ladder, so it’s refreshing to see this sort of innovation from a major high-street bank.

"It’s a win-win situation for those involved. The borrower gets a genuine opportunity to buy their first home, while parents can make a decent return on the 10 per cent deposit they stump up."

Those looking for more information should call Lloyds Bank on 0345 122 1607.

In other mortgage news, Santander is offering first-time buyers £1,000 to take out a loan.

Meanwhile, Yorkshire Building Society allows borrowers to lock in to a low-mortgage rate for seven years.

If you could pay an extra £25 a month, you'll be mortgage free a year earlier.


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