Mortgage lender offers 100 percent loans – with a catch

First time buyers need family backing to clinch deal

Britain's biggest mortgage lender Lloyds Bank is to introduce 100 percent borrowing to first-time buyers – provided they also have backing from the so-called "Bank of Mum and Dad".

Pulling together a deposit, which most lenders set at five percent, is the biggest obstacle for many would-be home owners.

Research by Lloyds found that owning their first home remained the biggest life ambition for people between the ages of 18 and 35, but for half of those questioned, accruing the deposit was the biggest barrier.

Similarly, a large number of parents said they wanted to help their children to become property owners but were concerned that they would need that money themselves for their later years.

Under the Lloyds scheme known as "Lend a Hand", full value borrowing up to 500,000 pounds ($658,000) will be available, at an interest rate of 2.99 percent for three years, provided a family member can deposit 10 percent of the value of the property into a Lloyds account, at an interest rate of 2.5 percent, and with no withdrawal access for the first three years.

It is the first time 100 percent borrowing has been seen since the financial crash, and the move will reopen the debate about facilitating a two-tier housing market, excluding those who would like to buy but cannot rely on family support.

"We are committed to lending 30 billion pounds ($39.5 billion) to first-time buyers by 2020 as part of our pledge to help people and communities across Britain prosper," said group director of Lloyds Banking Group, Vim Maru. "'Lend a Hand' is one of the ways we will do this.

"At the heart of this market-leading product is helping to address the biggest challenge first-time buyers face getting on to the property ladder, while rewarding loyal customers in a low-rate environment."

The Lloyds offer was described as "table topping" by Rachel Springall of the Moneyfacts advice service, who said it was equally attractive to those taking the loan and those guaranteeing it.

"It will no doubt grab the attention of first-time buyers looking to get on the property ladder," she said.

"Borrowers with little to no savings … will no doubt be struggling, while their parents may well want to help their children get their first home but are hesitant to relinquish their hard-earned savings.

"So a guaranteed fixed return for three years at a fantastic return will no doubt be enticing."

The move could also prove to be a general shot in the arm for the British housing market, which is going through an unsettled phase at the moment, largely due to concerns over Brexit.

The Your Move estate agent group reports that prices have dropped by as much as 25 percent in some of the United Kingdom's most affluent areas, and the Royal Institute of Chartered Surveyors says the sales outlook is the bleakest it has been in 20 years.