Lloyds TSB has revealed plans to launch a 95% loan-to-value mortgage for first time buyers (FTBs) that is topped up by a loan from their council.
Buyers will be able to buy a home from the property market with just a 5% deposit in a pilot scheme that could be rolled out across the UK.
Local authorities that have already signed up include Blackpool, Warrington, Newcastle-under-Lyme and East Lothian. Authorities will agree where in their areas the scheme will be available, with councils topping up buyers’ 5% deposits with an additional loan of up to 20% of the property’s value.
This means that despite only being able to raise a small deposit, the additional equity provided from a council loan will allow FTBs to pay lower mortgage rates, equivalent to as low as 75% loan-to-value. Councils could take a hit if buyers fall into default, but they are expected to benefit from generous rates of interest on their loans.
Lloyds has said that it is happy for the ‘Local Lend a Hand’ loans to vary from £25,000 to £350,000 with individual authorities making the final decision on caps.
Stephen Noakes, commercial director of mortgages at Lloyds TSB, comments: “We know that a lot of young people turn to the Bank of Mum and Dad to get their foot on the ladder, but that’s not a solution for everyone.”
This represents an increasing understanding on the part of lenders that new, creative, ways to help first time buyers back on the rental ladder is critical to the future of the UK housing market.
This is just one example of innovative schemes for first time buyers who are a critical part of the equation that leads to more demand and a rising market.
Our view is that the window of opportunity for buying investment property at the lowest prices is beginning to close. Discounts are already falling and great investment deals harder to find. Investors should build their portfolios as quickly as possible to benefit from the very best investment opportunities.