The Lloyds Lend a Hand mortgage is priced at 2.99% fixed for three years, at 100% loan-to-value, but it still requires a 10% deposit – though crucially, this will be invested for three years and will earn a fixed rate of 2.50%.
Rachel Springall, finance expert at Moneyfacts.co.uk, 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.
“The limited distribution channel will enable Lloyds Bank to quantify demand, but hopefully it will soon be rolled out across all channels. Those borrowers with little or no savings for a deposit will no doubt be struggling and may wonder if they will ever become a homeowner without support.
“Parents, too, 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 rate will no doubt be enticing.
“The Bank of Mum and Dad can get a table-topping savings rate of 2.50% fixed for three years under the Lend a Hand deal. (The 10% deposit can be returned to the parents, plus savings interest, after three years.)
“Currently Al Rayan Bank pays 2.50% as a gross profit rate on its 36-month fixed bond, which is at the top of its sector and offers the sole competition at present.
Moneyfacts said a similar deal on the market is the Barclays Family Springboard mortgage, which is priced 0.01% higher than Lloyds Bank’s deal at 3.00% fixed for three years, again at 100% loan-to-value.
Parents would put up a deposit of 10%, held within its Helpful Start Account, which offers a lower rate of savings interest at 2.25% gross and is returned after three years. However, should base rate rise, the rate is guaranteed to be 1.50% above Bank Base Rate, so savers could earn more interest than the 2.50% offer with Lloyds Bank’s Lend a Hand. Having said that, should interest rates fall, savers will see their interest dwindle.
Rachel added: “The Lend a Hand mortgage from Lloyds Bank has a maximum term of 30 years, but the Barclays Family Springboard mortgage has a maximum term of 25 years. Therefore, borrowers looking to reduce their monthly repayments will find the Lloyds Bank deal very accommodating, but they must be mindful that the longer the mortgage term, the more interest it will cost overall. Eligible Club Lloyds customers will also benefit from £500 cashback when they complete.”
The headline on this story has been corrected