Lloyds have today launched a new type of 100% mortgage product for first time buyers in the UK.
The product immediately drew criticism from commentators online, for the fact that although it is pitched as a 100% mortgage, there is actually a requirement for a guarantor such as a family member to pay a 10% of the mortgage – essentially as a deposit – into a Lloyds savings account for three years.
On completion of the three years if everything has gone smoothly the family member can then get the deposit back.
However if payments are missed, these will be taken from the deposit – so any prospective customers need to discuss this careful with their family and everyone should understand the risks.
If the buyer misses any mortgage payments, we will take this from your savings. That means you may get back less than you put in.
Although it is a creative way of potentially getting some extra people onto the housing ladder – it was pointed out by users on the Reddit r/UKPersonalFinance subreddit that by encouraging borrowing the ultimate result of this will be to push up house prices and debt, making the housing situation in the country worse.
This product is not bad for people who already have access or could potentially negotiate access to the “Bank of Mum and Dad” or people who already have the wealth available – but is very unlikely to help people who would not otherwise be able to afford a mortgage deposit.