First-time buyers are finding themselves in a predicament with falling house prices as the housing market becomes more affordable. Expert opinion is they are being squeezed out of home ownership by the very large deposit they are required to have in order to secure their first mortgage. Saving up to £25,000 for a deposit takes a lot of effort and you need to have the commitment to save that much money each month for a deposit. Lloyds Banking Group was recently rescued by taxpayer’s money when the government stepped in after they acquired the ill-fated HBOS (Halifax and the Bank of Scotland). Today Lloyds have released an innovative mortgage product aimed at first-time buyers looking to get on the property market.
Now is a good time for first-time buyers to buy their first home. It is a ‘buyers market’ and buyers can negotiate some great deals with sellers that are eager to sell. Property prices now stand at 2004 prices which make them excellent value and the fall in house prices is possibly nearing the bottom. The best time to buy a home is when the market is nearing the bottom of a falling market before house price stabilise and then start to rise which they will do one day in the near future.
This new product from Lloyds is a good deal for adults who are fortunate to have parents that are able help them purchase a new home. This is a niche mortgage product and unfortunately is not suitable for buyers where their parents are unable to help them financially. This will limit the number of people this mortgage will be available to help. The mortgage market remains an unfair battle ground as lenders battle to find more ingenuous ways to lend money without risk to their balance sheets.
The Lloyds banking Group are offering a very attractive mortgage deal for first-time buyers and an exceptionally low mortgage rate for a 95% mortgage; you would expect these interest rates for a 75% mortgage scheme.
Here is Lloyds lending criteria to secure a first-time buyers 95% mortgage:
- Mortgage for 95% of the property value
- A 5% deposit required
- Parents or guarantors will need to deposit 20% of the purchase price of the home into a Lloyds Savings Account for the next 3 ½ years. Lloyds have not announced the interest rate for their saving account yet. There will be a legal charge over the money deposited a savings account and the deposit is locked away for 3 ½ years.
- Income required is between 2 ½ times income to 5 times income. It is dependent on the type of job, time in employment, other financial commitments like credit card debts and loans outstanding, whether or not you are a Lloyds customer already, etc.
- A £99 activation fee and a valuation fee based on the house price is required to start the application process.
- This mortgage is portable which means that you can move from one home to another without any penalty.
- There is no ‘Higher Lending Fees’ which is normally added to a mortgage over 75% loan-to-value.
- There is a Penalty fee of 3% of the outstanding mortgage for the first two years and then a 2% fees for the third year if you were to sell the house and repay the mortgage early.
- This product allows up to 10% overpayments each year and after the first twelve months you are allowed to under pay the mortgage if required by any overpayments previously made.
- The interest rate is fixed from 4.39% to 4.89% for the next three years depending on the product fee you pay.
- 4.39% has a product fee of £995 which can be added to the mortgage.
- 4.49% has a product fee of £495 which can be added to the mortgage
- 4.89% has no product fee
This scheme works like this:
The house is valued at £100,000; the first-time buyer finds a 5% deposit of £5,000 plus valuation fees, solicitors’ fees, search fees and other disbursement fees. The parents or guarantors agree to deposit 20% or £20,000 into Lloyds Savings Account for the next 3 ½ years minimum. After the three and a half years if the value of the mortgage has dropped to below 90% of the value of the home purchased then the parents or guarantors are free to move their money.
Their commitment to the legal charge placed over their savings money ends to the mortgage lender. The parents will remain tied into the mortgage until the value of the mortgage has dropped to below 90%. So parents could be tied in for a long time if house prices continue falling and the housing market does not recover soon.
If you take a repayment mortgage over 25 years for £95,000, after three years you would have paid back around 6% of the capital borrowed. So after three years your mortgage balance would be £89,300 and your parents would then be released from their legal commitment to the mortgage.
This is a great opportunity for first-time buyers to take advantage of in the current climate. First-time buyers are essential to the housing market returning to normality. Other products offered in the past required the parents, guarantors and grandparents to provide a legal charge over their own home and this placed them at total risk of losing their home as well.
Always take ask to speak to a Mortgage Adviser before committing to a new mortgage and ask as many questions as you need to in order to fully understand your new mortgage product. Mortgage Brokers who use the ‘whole of the mortgage market’ are the best. They will be able to provide you with the best mortgage for your circumstance from the whole of the mortgage market. Furthermore, they will be able to provide you with full ‘Advice and Recommendation’ for your new mortgage.
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