Lenders' low-deposit battle hots up


Britain Lloyds Bank

The battle between lenders offering low-deposit mortgages under the Government's flagship Help to Buy scheme has been stepped up as another bank announced new products.

From tomorrow, Lloyds Bank will be offering a two-year fixed-rate mortgage at 5.19% under the Help to Buy mortgage guarantee scheme - but applicants need to hold a current account with Lloyds Bank to get this rate - which carries a £995 fee.

Borrowers who do not have a current account with Lloyds Bank can also take out the mortgage product, but their rate will be higher, at 5.39%, also with a £995 fee.

Lloyds is also offering a fee-free version of the deal, which comes with a rate of 5.59% for home buyers with a Lloyds Bank current account, and a rate of 5.79% for those who do do not have a current account with the bank.

Lloyds' sister brands Halifax and Bank of Scotland were among the first lenders to start offering mortgages under the new phase of the Government's Help to Buy scheme, which launched in October to offer state-backed mortgages to people trying to get on the property ladder or move up it. First-time Buyers and home movers will be able to apply for Lloyds' new Help to Buy mortgages in branches from tomorrow.

Lloyds has been offering 5% deposit mortgages in recent years under its "lend a hand" scheme, which involved home buyers' parents stumping up money into a Lloyds savings account to act as a guarantee in case the borrower defaulted on the mortgage.

The bank has stopped offering this scheme as it concentrates on Help to Buy, but it is still running another similar scheme called "local lend a hand", which involves the bank partnering up with some local authorities across England and Wales to help those with small deposits on to the property ladder.

The announcement came as Prime Minister David Cameron announced that 6,000 people have put offers in on homes and applied for mortgages under the new Help to Buy scheme.

Barclays and Santander are expected to introduce their own Help to Buy products on to the market this month, also joining Royal Bank of Scotland, HSBC, Virgin Money and Aldermore which have launched products over the last three months.

The expansion will mean lenders representing two thirds of the mortgage market are offering products under the Help to Buy mortgage guarantee scheme.

Rachel Springall, a spokeswoman for financial information website Moneyfacts, said: "While it's great to see another lender entering the battle of Help to Buy deals, these latest offerings can be beaten by the other high street banks under the scheme.

"HSBC offers a 4.79% two-year fixed Help to Buy deal with a £99 fee and NatWest offers a fee-free option at 4.99% over the same term. The best fee-free two-year fixed (deal) in the market comes from Norwich & Peterborough Building Society at 4.89% along with a incentive package of a £500 rebate and a free valuation, which is outside of Help to Buy."

According to Moneyfacts' figures, the new Lloyds' deals bring the number of products on the market for people with a 5% deposit to 116 - from just 42 mortgage deals available in October.

Halifax also released an update on how its launch of the Help to Buy mortgage guarantee scheme has been going. It said that It is seeing "strong levels of interest", with almost 500 full mortgage applications a week.

More than four-fifths (80%) of mortgage applications made to Halifax under the scheme have come from first-time buyers.

Ms Springall continued: "Mortgage rates are still falling and 95% loan-to-value deals now show the average two-year fixed is 5% compared to 5.86% last year, with the average five-year fixed rate standing at 5.23% compared to 5.61% a year ago.

"Borrowers need to be wise and select a mortgage deal on its overall cost, including incentive package and fees. The standard variable rate (SVR) which comes into play once the fixed-rate deal ends should also be considered, as a significant rate rise will have a devastating effect on the monthly repayment."