How does Halifax's ‘no deposit mortgage scheme’ help first-time buyers get on property ladder

Getting your foot on the property ladder is no mean feat - particularly when you need to save for a hefty deposit.

By Ian Hirst
Friday, 13th September 2019, 2:05 pm
Halifax, part of the Lloyds banking group, has a centre on Trinity Road, Halifax.
Halifax, part of the Lloyds banking group, has a centre on Trinity Road, Halifax.

But first-time buyers can now get a mortgage without putting down a deposit thanks to a new scheme launched by Halifax – providing a family member contributes to the property price.

Halifax is part of the Lloyds Banking Group.

The banking firm employs 6,000 people in Calderdale and have a vast corporate centre on Trinity Road in Halifax.

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Lloyds Banking Group was established in 2009 when Lloyds TSB acquired HBOS.

How does it work?

The three year mortgage is available to home buyers where at least one is a first-time buyer, at a fixed interest rate of 2.9 per cent.

It is available on mortgages of up to £500,000 over a maximum 30 year period, but a family member must contribute 10 per cent of the property price from their own savings.

In return, the bank will pay 2.5 per cent in interest on the money they deposit, and family members can also get £300 cashback towards their legal fees. However, if any mortgage repayments are missed, Halifax can take the money from the 10 per cent deposit supplied by a family member.

‘No deposit mortgage’

The family member who contributes the required 10 per cent deposit sets up a ‘Family Boost Fixed Savings Account’ with Halifax before mortgage completion.

To do this, either the borrower or supporter must also have either a fee-free Halifax Reward account or an Ultimate Reward current account, which comes with monthly fees of up to £17.

At the end of the three years, the family member who helped contribute the deposit will be refunded their 10 per cent, plus the 2.5 per cent interest.

Buyers should be aware that they cannot take the mortgage with them if they move house, as they will no longer qualify as a first-time buyer. However, they may be able to port the rate, providing they qualify for Halifax’s standard lending criteria at the time.

Is it a good deal?

The idea behind the scheme is that the homeowner will have paid back enough of their mortgage to be able to re-mortgage to a lower loan-to-value mortgage once the fixed term is up.

While the ‘no deposit’ scheme does help first-time buyers to get onto the property ladder, it also comes with some risks.

If house prices fall, borrowers can fall into negative equity, meaning the current value of their home is less than the amount they have outstanding on their mortgage.

In this case, if they were to sell their property, they would end up owing the bank the difference between the value of the mortgage and the value of their home – leaving some struggling to re-mortgage.

However, the scheme could be a good option for buyers who are unable to save up for a deposit, which have risen from an average of £27,059 in 2009 to £41,099 in 2019, according to Halifax.

The scheme is similar to a deal recently introduced by Lloyd’s bank, which offers buyers a fee-free three year mortgage, fixed at a slightly higher interest rate of 2.99 per cent, and the same savings rate.

Barclays bank also offers a 100 per cent mortgage scheme, fixed over five years at a rate of 2.95 per cent.