Lloyds is bringing back 10% deposit mortgages for first-time buyers - how it works

First-time buyers will be able to take advantage of a cheap mortgage deal from next week, as Lloyds Banking Group brings back its 10 per cent deposit scheme.

The return of the deal marks positive news for budding homeowners, particularly following a difficult financial year for many, as a result of the coronavirus pandemic.

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How does it work?

The deposit deals will be made available from 8 December and will be available from the group’s Lloyds Bank and Halifax brands directly.

The maximum loan buyers can take out will be £500,000, while the maximum loan-to-income ratio will be capped at a multiple of 4.49.

The lender will monitor service levels and the criteria for the deal will be reviewed regularly.

Lloyds’ new 10 per cent deals will not be available to existing homeowners, unless one applicant in a joint mortgage application is a first-time buyer. New build-properties will be excluded from the scheme and an enhanced credit score requirement will be applied.

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The deals also cannot be used alongside any other “lend a hand” schemes, such as Help to Buy.

Helping more onto the property ladder

In line with many other lenders, Lloyds pulled its 10 per cent deposit deals around the start of the coronavirus crisis in March, and has since been offering deals with a 15 per cent deposit.

Lenders have become concerned about “riskier” low deposit loans amid the potential for house prices to fall, meaning some borrowers could end up owing more than the value of their home.

Uncertainties surrounding many jobs in the current economic crisis also increases the risk of some borrowers defaulting on their loans.

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Just over a fifth (21 per cent) of house sales were made to first-time buyers in October, according to the National Association of Estate Agents (NAEA) Propertymark. This was up from 19 per cent in September, but still marked a six percentage point fall compared with October 2019.

However, the return to a cheaper mortgage deal means more buyers will have a chance to get their foot on the property ladder.

Jasjyot Singh, managing director, consumer and business banking, Lloyds Banking Group said, “Raising a deposit is still hands down the biggest challenge for first-time buyers.

“Reintroducing options at higher LTVs (loans-to-value) means we can support more people ready to get a foot on the ladder.

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“We will monitor service levels to make sure we continue to be there for our customers. We also relaunched our Lloyds Bank Lend a Hand mortgage last month, which enables first-time buyers to borrow up to 100 per cent of the mortgage with the support of their family.”

More 10% deals on the market

Several other well-known lenders have also announced plans to re-enter the 10 per cent deposit market, offering new products or expanding access to low deposit deals.

Nationwide Building Society has previously announced plans to increase access to higher loan-to-value mortgage lending.

The bank said from the second week of December, it will be making 10 per cent deposit loans available for house purchase and existing mortgage members looking to move home. This means people will have the same access to 90 per cent LTV (loan-to-value) loans as first-time buyers.

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Yorkshire Building Society has also started offering 10 per cent deposit mortgages again after withdrawing lending at this level in the summer. Its new deals are aimed at first-time buyers and existing homeowners who want to move or remortgage.

Accord Mortgages also offers 10 per cent deposit mortgages, while TSB has enhanced its first-time buyer deposit range.