Major UK bank announces new £5k deposit mortgage aimed at ‘helping renters onto property ladder’

The new low-deposit mortgage product is set to help first-time buyers who are renting and do not have financial support from the “bank of mum and dad”

UK banking giant Lloyds has announced it is rolling out a new low-deposit mortgage that could help first-time buyers step onto the property ladder with a deposit of just £5,000.

The new offering, which is also accessible through Halifax and via brokers, is targeted predominantly at tenants who are already managing high renting costs, but who may lack financial backing from the “bank of mum and dad”.

Lloyds stated that the divide between typical rents and mortgage repayments has narrowed, meaning numerous tenants are already spending as much monthly as they would on a mortgage.

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The bank explained that by reducing the upfront expense to enter the property market, the new mortgage could cut the time needed to save a deposit by years for certain purchasers.

The new mortgage is accessible for properties valued up to £300,000 and has a maximum loan-to-value (LTV) of just over 98 per cent. Individuals can borrow up to four-and-a-half times their salary with the five-year fixed-rate mortgage deal, which has no product fee.

The mortgage product will carry an interest rate of 5.89 per cent when it officially launches on May 18. The deal is open to both employed and self-employed applicants, who will need to pass “strict” affordability and credit checks, according to the bank.

The borrowing term is up to 40 years and the product will be offered UK-wide. Borrowers making purchases involving 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.”

Lloyds stated that the typical first-time purchaser is now aged 32 – two years older than a decade previously – as escalating rental costs and the rising cost of living have made saving more challenging.

A number of other lenders provide low or zero-deposit mortgages, assisting first-time purchasers in taking their initial step onto the housing ladder. In February, Santander UK introduced a mortgage requiring a minimum deposit of £10,000. Skipton Building Society similarly provides mortgages with minimal to zero deposit requirements.

Andrew Montlake, chief executive of Coreco mortgage advisers said: “This is a genuine shot in the arm for aspiring home buyers, especially those who don’t have the luxury of the bank of mum and dad behind them.

“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 decent 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.”

David Hollingworth, associate director at L&C Mortgages said: “This new launch is significant as it marks another major high street lender developing solutions for those with a small deposit. We’ve seen a growing range of lenders in this space, designing products that could significantly speed up 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 that have good affordability but are being held back by the need for the traditional deposit of 5% or more.”

Speaking generally, Mr Hollingworth warned that smaller deposits can increase the risk of purchasers slipping into negative equity. This occurs when property values drop and the outstanding mortgage exceeds the home’s worth.

However, he added: “That only becomes a problem where the property needs to be sold, which would crystallise a loss.”