Lloyds Banking Group is launching a new mortgage product next week aimed at buyers with low deposits.
The UK’s largest mortgage lender said the deal will be available from 18 May and is designed for people who are struggling to build up a large deposit.
The product will be offered at a fixed rate of 5.89% over five years, for properties valued up to £300,000. It is aimed at borrowers with a minimum £5,000 deposit, which must come from their own savings rather than a gifted contribution.
The mortgage will be available through Lloyds, Halifax and intermediary channels.
Lloyds said the product is intended primarily for renters facing high ongoing housing costs but without financial support from family. It added that the gap between average rents and mortgage repayments has narrowed in recent years, with some renters already paying similar monthly amounts to what they would expect on a mortgage.
Borrowers will be able to take out loans of up to 4.5 times income, subject to affordability and credit checks. The product has no arrangement fee.
The maximum loan-to-value ratio is just over 98%, and the mortgage term can extend up to 40 years.
Eligibility excludes shared ownership purchases, new-build properties and applications involving gifted deposits.
Lloyds said the aim of the product is to reduce the time required to save for a deposit for some buyers by lowering the upfront cash requirement.
Amanda Bryden, head of mortgages at Lloyds, said: “We hear time and again from those who are doing everything right – paying their bills, managing their money well, putting aside what they can – but still feel locked out of home ownership because saving a big enough deposit seems impossible.
“The reality is that many would-be buyers are already paying as much in rent as they would on a mortgage.
“By cutting the upfront cost to £5,000 we’re breaking down a major barrier to getting on the property ladder. This gives people a better chance to own their first home and start building a more secure future.”
David Hollingworth, associate director at L&C Mortgages, is among those to welcome Lloyds’ latest mortgage offering.
He said: “We know that first-time buyers can struggle to amass a deposit big enough to make buying a reality. High rents can make it a slog to reach the minimum 5% deposit that most mortgages demand and the Bank of Mum and Dad isn’t an option for everyone.
“This new launch is significant as it marks another major high street lender developing solutions for those with a small deposit. We’ve seen a growing range of lenders in this space, designing products that could significantly speed up the journey to home ownership.
“There are now several deals where it could be possible to borrow more than 98% of the purchase price or even require no deposit at all. This will help those that have good affordability but are being held back by the need for the traditional deposit of 5% or more. On a £300k purchase price this could mean a deposit of £5k, rather than £15k.
“It won’t necessarily work for everyone and doesn’t combine with the higher lending multiples that lenders can now offer. The purchase price cap of £300k is at a level that may dent eligibility in regions where prices are highest and those able to scrape a bigger deposit together will open up cheaper rates.”
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