Lloyds launches 95% FTB govt-backed mortgage

Lloyds TSB plans to launch a mortgage for borrowers with a 5% deposit and backed with an equity loan from a local authority.

First-time buyers will be able to buy on the open market, as long as the property is in an approved postcode, and authorities will offer up to 20% of the property value.

The loan is a cash backed indemnity which the local authority passes across to Lloyds in return for an agreed interest rate.

The product is similar to the current 'Lend a Hand' scheme, which allows first-time buyers to own the whole property and pay a lower mortgage rate, equivalent to the rates paid for a 75% Loan to Value.

Lloyds is willing to lend mortgages worth between £25,000 - £350,000 but local authorities will set the limit on the maximum amount an applicant can borrow.

Stephen Noakes, commercial director, mortgages says: "We know a lot of young people turn to the Bank of Mum and Dad to get their foot on the ladder, but that's not a solution for everyone."

Stuart Fearns, senior commercial planning manager of mortgage products at Lloyds, says the product will help first time buyers get on the property ladder.

"The two big hurdles for first-time buyers are raising the deposit and being able to afford the mortgage payments. This product helps on both."

"The benefits are similar to the Lend a Hand, but it is structured very differently. Borrowers can borrow up to 95% LTV at a far more competitive rate then you can normally find at that level."

Local authorities piloting the schemes include Blackpool, Warrington, Newcastle Under Lyme and East Lothian with Lloyds keen to form lending partnerships with all interested authorities across the UK in 2011.

The first schemes could be made available from mid April, but the timeline for roll out will vary depending on the efficiency of each authority.

The loan is available through Lloyds branches only and the bank confirmed it has no plans to launch through intermediaries.

The Lend a Hand product range already allows first-time buyers with a small deposit to buy a home with the support of a parent or friend.

Nigel Quinton, chief executive of the Mansfield Building Society says  lenders had previously found equity loans too risky because the mortgage protection clause in the lease was not a tight enough guarantee in the case of repossessions.

The difference with a mortgage indemnity is in the case of repossesion, the housing association buys the debt and the property back including any additional costs to the mortgage lender.