BROKERS have welcomed the launch by Lloyds of a new £5,000 deposit mortgage to help first-time buyers (FTBs) get on the property ladder sooner, but say a key stumbling block will be the £300,000 price cap, which, in London and the South East, “will put a significant chunk of the market out of reach”.
One said it is “the most meaningful thing a high street lender has done for first-time buyers in years”, but another cautioned it should be weighed up against other options. A third warned potential borrowers need to be wary of the risk of negative equity at this loan-to-value (LTV).
Lloyds says the new product, also available through Halifax and via brokers, is aimed primarily at renters who are already coping with significant regular housing costs, but who find it difficult to save tens of thousands of pounds for a traditional deposit without financial support from family.
In recent years, the gap between average rent and mortgage payments has narrowed, meaning many renters are already paying as much each month as they would on a mortgage. Yet saving for a deposit remains the single biggest barrier to home ownership.
The fine print
The mortgage, a 5-year fixed rate product, will be available on properties worth up to £300,000, have a maximum loan-to-value of 98% and a maximum loan-to-income ratio of 4.5x.
No product fees will be charged and the interest rate available to eligible applicants when the new product officially launches on 18th May will be 5.89%. It will be available to both employed and self-employed applicants and have a maximum mortgage term of 40 years.
Applicants, Lloyds says, will need to pass strict affordability and credit checks, and the product will not be suitable for all first-time buyers. Those purchasing through shared ownership schemes, new build homes and with gifted deposits are not eligible.
Amanda Bryden, Head of Mortgages at Lloyds, said: “We hear time and again from those who are doing everything right – paying their bills, managing their money well, putting aside what they can – but still feel locked out of home ownership because saving a big enough deposit seems impossible.
“The reality is that many would-be buyers are already paying as much in rent as they would on a mortgage. By cutting the upfront cost to £5,000 we’re breaking down a major barrier to getting on the property ladder. This gives people a better chance to own their first home and start building a more secure future.”
Shot in the arm
Andrew Montlake, CEO at London-based Coreco, described the new mortgage as “a genuine shot in the arm for aspiring homebuyers, especially those who don’t have the luxury of the Bank of Mum and Dad behind them”.
He continued: “For many would-be buyers, the issue is not whether they can afford the monthly mortgage payments or whether they have a good credit record.
“The real mountain to climb is saving a big enough deposit while rents, bills and everyday living costs continue to take a hefty bite out of their income.
“There are already some good low-deposit and even 100% mortgage options out there, but when one of the UK’s biggest lenders puts its weight behind this part of the market, it matters. It sends a message of confidence and gives more borrowers a realistic route onto the housing ladder.
“Lloyds should be applauded for recognising potential buyers stuck on the sidelines through no real fault of their own. This will not be right for everyone, and proper professional advice is essential, but for the right borrower it could be the key that finally unlocks the front door.”
Lifeline for right buyers
Martin Rayner, Director at Compton Financial Services, also enthused about the product: “Anything that helps first-time buyers onto the property ladder is positive, especially when many renters are already paying more each month in rent than they would on a mortgage.
“For many people, the biggest hurdle is not affordability, it is saving a large deposit. A 98% mortgage could help buyers purchase years earlier, but there are risks.
“The five-year fix offers payment security, but it could also leave buyers stuck on a higher rate if mortgage pricing improves over the next couple of years.
“For the right buyer this could be a lifeline, but it should be compared carefully against other options such as family assist or guarantor-style mortgages before committing.”
£300k price cap an issue
Jamie Alexander, Mortgage Director at Romsey-based Alexander Southwell Mortgages, said it was encouraging to see a lender of Lloyds’ size targeting this market.
But he warned: “The £300,000 purchase price cap is worth noting, though. For buyers in many parts of the UK that’s workable, but in London and the South East it will put a significant chunk of the market out of reach, which is arguably where the deposit struggle is felt most acutely.
It’s a view shared by Justin Moy, Managing Director at Chelmsford-based EHF Mortgages: “Any new scheme or option for first-time buyers should be applauded, but the £300,000 cap on the purchase price will be a huge stumbling block around London and the South East in particular.
“Those living in other parts of the UK may have better luck utilising the scheme, and it is a serious opportunity to get on the housing ladder. I hope this opportunity is extended to include £600k shortly, in line with typical 95% LTV schemes.”
Negative equity risk
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said: “This feels like more than just a mortgage product; it feels like a response to a broken housing market.
“The Renters’ Rights Act gives tenants more protection, but it does not solve the deeper issue: many renters are paying mortgage-sized rents while being locked out of ownership because they cannot save a huge deposit. Lloyds is clearly recognising that gap.
“I think this product could be powerful for the right borrower, especially someone with a strong credit profile, stable income and a proven track record of managing rent. But it is not risk-free.
“At 98% loan-to-value, there is very little equity cushion, so buyers need to understand the risk of negative equity, maintenance costs and being tied into a five-year fixed rate.
“So is it a response to renters’ reform? Maybe indirectly. The rental market is changing, landlords are adjusting, rents remain painful and lenders know renters need another route. This could help, but ‘I can buy’ should never replace ‘I can afford this comfortably’.”
Rohit Kohli, Director at Romsey-based The Mortgage Stop, said the new mortgage will get lots of attention but that the detail will matter.
He said: “New products from major high street lenders are always welcome, and this one will rightly get attention. A £5,000 deposit could make a real difference for renters who can afford a mortgage payment but are struggling to save a large deposit. But the detail will matter.
“The £300,000 property cap limits where this can work, especially in London and parts of the South East. We also need to see how they will treat flats, new-builds and other property types that often come with tighter loan-to-value rules.”
Ken James, Director at London-based Contractor Mortgage Services, added: “Lloyds’ decision signals a growing momentum across the mortgage sector to help renters transition into ownership.
“Lloyds is acknowledging the reality many young buyers face, which is that the challenge isn’t affording monthly payments, it’s accumulating the deposit. This shift in approach could help buyers get on the ladder years earlier.”
