Brokers have given a mixed welcome to the extension of Lloyds TSB’s lend a hand scheme, which now allows local authorities to act as a guarantor for up to 20 per cent of a first-time buyer’s mortgage.
The scheme previously allowed a parent or family members to use their savings as a guarantee. Under the extension, the borrower puts down a 5 per cent deposit and the local authority provides a cash-backed indemnity of up to 20 per cent of the property value as security and will earn interest on this amount.
Raising enough money for a deposit is one of the biggest hurdles for first-time buyers. Tighter lending criteria since the credit crisis has forced many borrowers to look for help from family and friends to put down a deposit.
Council of Mortgage Lenders figures estimate that in 2005, 38 per cent of borrowers aged under 30 required help with their deposit. In 2009, 84 per cent of FTBs needed help.
Barclays and Santander have similar schemes with housebuilders Bovis Homes and Affinity Sutton respectively, which guarantee a portion of a borrower’s mortgage. These schemes and lend a hand are only available direct to borrowers but Santander is looking to develop similar deals for the intermediary market.
Brokers believe the Lloyds scheme will allow more FTBs to gain access to the property market.
If I Were You managing director Rob Clifford says: “Loan to value is killing the market. Even property prices are now the secondary issue for first-time buyers. Raising a deposit is the single most challenging thing facing them.”
Your Mortgage Decision director Dominik Lipnicki says the Lloyds product will allow more people to buy a home but adds that the scheme needs to be offered by more than the five local authorities that have signed up.
He says: “It will get the housing market moving but until we start seeing plenty of 90 and 95 per cent deals, first-time buyers will struggle. This scheme has been limited to five areas and that is not enough.”
Lipnicki adds the scheme is not a one-size-fits-all solution. He says: “There are areas in the country where raising any sort of deposit, even 5 per cent, would be a struggle.”
But Capital Fortune managing director Rob Killeen says the scheme is an ideal solution for FTBs.
He says: “This highly innovative scheme provides the bank with the safeguard of obtaining its monthly repayments and seems an ideal partnership between the bank, local authority and first-time buyer.”
But he feels there might be problems if inflation rises, in which case “having taxpayers’ money tied up in an account not earning a fantastic interest rate is not desirable”.
A Lloyds spokeswoman says there are no current plans to offer the scheme to intermediaries but it has not ruled it out completely.
Chadney Bulgin mortgage partner Jonathan Clark says borrowers need advice on this complex product.
He says: “It is not ideal for consumers to go to a branch and purchase that sort of scheme on a non-advised basis but I doubt whether the branches would be equipped to give the appropriate advice.”
Clifford believes not offering the scheme to intermediaries limits customers’ choice.
He says: “It is not just about feathering the nest of intermediaries. You are denying consumers their channel of choice unless you open it up to the whole market.”