Skipton loan plan aimed at first-time buyers

Published 04th Sep 2008

The UK’s sixth largest building society has launched an innovative scheme to help first-time buyers on to the property ladder in the first attempt by a leading mutual to re-establish the historical link between saving and mortgage lending.

Skipton Building Society is allowing first-time buyers to borrow up to 95 per cent of the value of the property at standard rates – provided their parents deposit savings equivalent to 20 per cent of its value.

The scheme differs from a standard deposit because parents continue to earn interest on their savings. Skipton pays interest until such time as the mortgage borrower repays the home loan or remortgages, by which time they may have built up more equity in their property. In that case, the deposit can be returned to the parents in full.

Skipton Building Society said the new mortgage would aim to re-establish the link between savings and mortgage lending.

As late as the 1970s, building societies would require borrowers to save regularly with them for a period of time to prove they were a good credit risk before they were granted a mortgage.

Steve Haggerty, managing director of Skipton Building Society, said: “We’ve looked at a variety of ways to help first-time buyers in the past few months. This method means there is a direct link between savings and mortgages.

“Borrowers used to have to save with an institution to provide their creditability and this restores that linkage. This product rewards membership and reflects a link between savings and lending – that has been missing from the market for too long.”

According to research by the Council of Mortgage Lenders, up to half of first-time buyers rely on some parental help. For many, finding a large deposit is the main barrier to getting on the housing ladder, not monthly mortgage repayments.

However, in recent weeks, many mortgage lenders have been cutting rates, reflecting increased liquidity.

“The average two-year fixed-rate peaked at 7.08 per cent at the beginning of July, since then numerous lenders have passed on cuts to their mortgage ranges,” said Michelle Slade, analyst at Moneyfacts.co.uk. “The average rate has dropped to 6.39 per cent, which is around the same level seen just prior to the onset of the credit crunch.”

Lloyds TSB on Wednesday announced its fifth cut in mortgage rates during the past month. Two, three, five and seven-year fixed rate mortgages where borrowers have a deposit of between 40 per cent and 25 per cent will be reduced by up to 0.11 per cent.

Source: ' FT '

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