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A major British bank is offering mortgages to first-time buyers who have a deposit of just \u00a35,000 – but experts are warning the deal may not be as good as it seems.<\/p>\n<\/div>\n
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Lloyds is the first major bank to offer the deal in the UK, following in the footsteps of other lenders like the Yorkshire Building Society who have offered similar schemes.<\/p>\n<\/div>\n
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Santander launched a similar offering in February, giving buyers the chance to get a mortgage of up to \u00a3500,000 in return for a \u00a310,000 deposit.<\/p>\n<\/div>\n
<\/p>\n However, experts warn that these low-deposit deals have echoings of what was on offer before the 2008 housing crisis.<\/p>\n<\/div>\n <\/p>\n <\/p>\n The new deal from Lloyds will give first-time buyers 98 per cent mortgages to help them get on the property ladder.<\/p>\n<\/div>\n <\/p>\n It will be available on homes up to the value of \u00a3300,000 and offers a five-year fixed rate and no product fees.<\/p>\n<\/div>\n <\/p>\n The scheme is designed specifically for those who have had no help from their parents in terms of building their deposit.<\/p>\n<\/div>\n <\/p>\n Lloyds’ mortgage deal will also be offered via Halifax and other brokers. However, the deal only allows buyers to borrow up to 4.5 times their income.<\/p>\n<\/div>\n <\/p>\n Buyers will be offered a five-term fixed term of 5.89 per cent interest.<\/p>\n<\/div>\n <\/p>\n Amanda Bryden from Lloyds said the new offering is suitable for renters, as they will be paying as much in rent as they would for a mortgage.<\/p>\n<\/div>\n <\/p>\n \u201cThe reality is that many would-be buyers are already paying as much in rent as they would on a mortgage,\u201d she said.<\/p>\n<\/div>\n <\/p>\n \u201cBy cutting the upfront cost to \u00a35,000 we\u2019re 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.\u201d<\/p>\n<\/div>\n <\/p>\n The lender also stresses that borrowers will need to undergo rigorous affordability and credit checks, to ensure that they will be able to keep up with payments.<\/p>\n<\/div>\n <\/p>\n <\/p>\n David Hollingworth, of L&C Mortgages, told The Telegraph that low-deposit mortgages come with bigger risks for buyers.<\/p>\n<\/div>\n <\/p>\n This is because they risk falling into negative equity if the price of their house falls.<\/p>\n<\/div>\n <\/p>\n \u201cA smaller deposit does mean a higher chance of negative equity if property prices fall. That only becomes a problem where the property needs to be sold, which would crystallise a loss,” he told the outlet.<\/p>\n<\/div>\n <\/p>\n \u201cThere\u2019s a big focus on affordability and the mortgage is a five-year fixed rate, so monthly payments won\u2019t be affected by changes to interest rates.<\/p>\n<\/div>\n <\/p>\n He added: \u201cThat should help ensure that payments are manageable and by the end of the five years borrowers will have eaten into their mortgage balance, hopefully riding out any dip in house prices in the meantime.\u201d<\/p>\n<\/div>\n <\/p>\n Low-deposit mortgages were common before the 2008 financial crisis, but many were too risky and they played a part in causing the economic crash.<\/p>\n<\/div>\n <\/p>\n However, there are now much stricter regulations on banks offering out loans.<\/p>\n<\/div>\n <\/p>\n Lenders must now assess borrowers’ net income against their spending, rather than just their gross salary. Plus, the Bank of England forces lenders to restrict mortgages offering more than 4.5 per cent <\/p>\n<\/div>\n <\/p>\n The Mortgage Uni’s Peter Stamford previously told City AM of his concerns following the increase in 99 per cent loan-to-value mortgages.<\/p>\n<\/div>\n <\/p>\n \u201cIt\u2019s a high-stakes gamble and could potentially fuel yet another house price bubble,\u201d he said.<\/p>\n<\/div>\n <\/p>\n Charles Breen of Montgomery Financial also issued warning: \u201cShort-term gain could result in long-term pain if borrowers slip into negative equity and at this loan to value there is definitely a chance of that.\u201d<\/p>\n<\/div>\n <\/p>\n <\/p>\n In the age of stats geeks, AI-generated Fantasy teams and nth-degree analysis, we’ve stripped football knowledge down to its most instinctual form: Win, Lose or Draw. <\/p>\n And if no users predict all results correctly, EVERY player who submitted an entry will be placed into a random prize draw for the \u20ac1,000\/\u00a31,000.<\/p>\n<\/div>\n <\/p>\n Two players came within an inch of winning the jackpot last week with 9\/10 right – play below for this weekend’s fixtures! It takes just a few minutes to enter\u2026<\/p>\n<\/div>\n <\/p>\nWhat is the deal with the new Lloyds mortgage?<\/h2>\n<\/p>\n
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