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lloyds tsb lend a hand scheme now eligible to home movers.
Published: 07/07/2010 |
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Andrew Hagger of Moneynet.co.uk comments on the latest innovative move to help keep the housing market moving It’s not only first time buyers who have found lenders 15% plus deposit requirements a major barrier to home ownership, but also people who bought near the peak of the housing boom will be facing a similar issue if they need to move to a new location or larger property. In recognition of this situation Lloyds TSB has this week extended its ‘Lend a Hand’ mortgage, originally launched for first time buyers in May 2009, and opened the scheme up to first time sellers too. Under the terms of this niche product Lloyds TSB will lend a maximum of 95% of the value of the property with the proviso that 25% of the purchase price is provided by the buyer and their parents or family member, with the buyer contributing a minimum of 5% of this. Because the bank is in effect only advancing 75% of the value of the property by taking a legal charge over the parent’s contribution, their risk is far lower than with a traditional 90% plus advance and the less punitive interest rate reflects this. The 4.79% rate (plus £895 fee) over three years is for Lloyds TSB current account holders, whereas those who bank elsewhere will have to pay a slightly higher 4.99%. Whilst transferring your current account is often seen as a bit of a hassle, in this case it’s well worth the effort as a 0.2% reduction on a mortgage of £142,500 will save £576 in repayments over 3 years. To put the rates in context, the best buy 90% LTV 3 year fixed rate mortgage from Post Office is priced 1.20% higher at 5.99% (with £999 fee). Many parents will do all they can to help their children establish a sound footing on the housing ladder and the terms of the ‘Lend a Hand’ scheme are likely to prove popular with those who have sufficient capital at their disposal. So what’s the catch? There isn’t one really, as long as there is at least 10% equity at the end of the three year term the bank will release the parents from their obligation and will return their savings to them. The worst case scenario would see the ‘Bank of Mum and Dad’ having to leave their savings as a back up for a longer period, i.e. until the 10% equity figure is achieved. The fixed interest rate of 3.75% paid to the parents in lieu of their contribution can be bettered; but it is still a respectable savings rate and above the current market average of 3.50% for a three year term. If the parents were to invest say £30k (20% deposit on £150k mortgage) rather than in a best buy fixed rate savings deal at 4.15% they would lose out on £336 (net of 20% tax) over the 42 months – a sum of interest that I’m sure many would be prepared to sacrifice in order to help their flesh and blood live more comfortably. It may be argued that the pricing looks expensive when compared with the mainstream 75% LTV 3 year fixed rate mortgages from Principality Building Society or The Co-operative Bank at 3.49% and 3.79% respectively. However although borrowing £142,500 at 3.49% instead of 4.79% would reduce your repayment by around £100 per month, when you factor in the monthly interest of £93.75 the parents/family member receive on their stake it shows that pricing of the ‘Lend a Hand’ scheme is not out of line. This sort of product innovation will provide a new and workable solution for some borrowers and their families and as a result may help the current subdued property market to keep ticking over. ENDS |
