Lloyds Bank offers 100% mortgages to new homeowners for first time since financial crash

Mortgages for the whole value of a home are riskier for lenders and buyers

Lloyds Banking Group is to offer first-time buyers 100 per cent mortgages, but only if a family member offers to back the loan.

Mortgages for the whole value of a home are riskier for buyers who face negative equity if prices fall, consumer groups warned.

Very high loan-to-value mortgages are controversial and were criticised for helping to fuel the property bubble before the financial crisis. But the have begun to re-emerge in various forms in recent years

Lloyds has joined Barclays in offering home loans where a buyer does not have to put down a single penny of deposit.

However, Lloyds bank’s new “Lend a Hand” mortgage is different to those available a decade ago. Buyers will not need to provide a deposit for their home but instead a relative puts 10 per cent of the loan value in a savings account with Lloyds.

Mortages can be for a maximum of £500,000 for up to 30 years while the savings are secured for three years and pay a rate of 2.5 per cent.

If repayments are kept up for the three years the family member can take their money back. Barclays’ 100 per cent mortgage deal for first-time buyers also requires a savings deposit from a family member.

A number of banks and building societies offer another alternative, “guarantor mortgages”, for 100 per cent of the property value. These work slightly differently as a family member does not put money into a savings account but does sign a contract agreeing to guarantee part of the loan.

Vim Maru, director of retail at Lloyds, said: “Although times have changed, children still have a similar ambition to their parents – to own their own home.

“Lend a Hand helps parents to invest in their children’s future and get the best return on their cash.”

The Post Office is offering “Family Link” mortgages which combine a 90 mortgage with a 10 per cent loan. The latter part is raised through mortgage against a relative’s home. They must be mortgage-free to qualify.

The increasing availability of high loan-to-value mortgages makes it easier for first-time buyers to become homeowners but raises concerns over the sustainability of property prices.

David Blake, principal mortgage adviser at Which? Mortgage Advisers, said 100 per cent mortgages were appealing for first-time buyers but come with risks.

“For instance, such mortgage deals could see you falling into negative equity if the value of the property drops, leaving you owing more to your mortgage lender than your home is worth.

“While this might seemingly offer a lifeline to getting on the housing ladder, it’s important to seek expert mortgage advice to ensure it really is the best and most sensible option for you and your family.”

Average selling prices have begun to fall in some regions, notably London, and a number of indicators point to flat or marginal growth in the UK housing market this year.

The Royal Institute of Chartered Surveyors (RICS) warned last month that the outlook for the UK housing market is the worst for 20 years.

A net balance of 28 per cent of RICS members expected a fall in sales over the following three months, the worst reading since it started compiling the data in 1999.

A downturn would leave those who have used debt to finance the entirety of their home paying off a mortgage for more than their property is worth.