When is a 95% mortgage not a 95% mortgage?
The revelation that Lloyds bank has launched the first 95% mortgage to first-time buyers for some time has caught the attention of the financial press. However, while on the surface only a 5% deposit is required in order to obtain a 95% mortgage at a rate of 4.39% this is not the whole story and by no means the whole picture.
Those looking to take advantage of the 95% mortgage, with the 4.39% rate fixed for three years, will need to persuade their parents to deposit a sum equal to 20% of the property value in a separate savings account. The money will need to remain with the bank until the outstanding mortgage falls below 90% of the value of the property and Lloyds bank will take a legal charge over the funds. However, even though the bank will take a legal charge over the savings account the interest earned will be payable to the parents when ownership is transferred back.
The financial press is undecided as to whether this is nothing but a marketing ploy or in fact a genuine attempt to help first-time buyers enter the market. In reality Lloyds bank will obtain a 25% deposit, and lend 95% of the property value, giving itself a significant safety net in the event of any problems.
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