Lloyds Banking Group is launching a £5,000 first-time buyer mortgage from May 18.
The new mortgage is available from Lloyds, Halifax and Bank of Scotland and is available for homes worth up to £300,000.
The five-year fixed product has a rate of 5.89% and is free of charge. It is open to employees and self-employed people and at least one applicant must be a starter.
Amanda Bryden, head of Halifax Intermediaries and Scottish Widows Bank, said: “We regularly receive feedback from agents that first-time buyers find securing a deposit one of the main obstacles to buying a home and today we are taking another step to help them get past that.”
“We recognize our responsibilities as a lender to ensure that loans are affordable – not just now, but in the future for all our borrowers. With this new offering, brokers have a new option for buyers who have demonstrated the ability to manage their finances, save for a deposit themselves and who take the greater security of a fixed interest rate over the longer term.”
“A lower deposit can make it easier for many to save for a deposit, or it can help free up money for other costs such as conveyancing or furnishing your new home the way you want.”
Commenting on the announcement, David Hollingworth, deputy director of L&C Mortgages, said: “We know that first-time buyers can struggle to make a deposit large enough to make the purchase. High rents can make it difficult to reach the minimum 5% deposit that most mortgages require, and the Bank of Mum and Dad is not an option for everyone.”
“This new launch is significant as it marks another major lender developing solutions for those with small deposits. We have seen a growing number of lenders in this space, designing products that can significantly accelerate the journey to home ownership.”
“There are now several deals where it could be possible to borrow more than 98% of the purchase price or even require no deposit at all. This will help those who have good affordability but are held back by the need for the traditional 5% or more deposit. On a purchase price of £300,000 this could mean a £5,000 deposit instead of £15,000.”
“It won’t necessarily work for everyone and doesn’t match the higher lending multiples that lenders can now offer. The £300,000 purchase price cap is at a level that could affect eligibility in regions where prices are highest and those who can scrape together a larger deposit will open up cheaper rates.”