Jeremy Gates looks at lenders’ efforts to drum up business by ensuring the relatives can help out, too

WHEN house prices were hurtling towards their August, 2007, peak, only generous helpings of parental cash got many young people into a home of their own.

Today, house prices may be wobbling and look like they may fall, but the Bank of Mum and Dad is still open for business and is about to extend its operations to help its hard-up offspring.

For Lloyds TSB is extending its Lend a Hand mortgage – originally for first-time buyers only when it started in May, 2009. Now it will help existing owners, many of whom would be stuck without family support, trade up the housing ladder.

The special mortgage costs 4.79% (plus £895 fee) for Lloyds TSB current account holders – and 4.99% for others. But the attraction is that buyers need a deposit of only 5% – when it is virtually impossible to get a loan elsewhere with an LTV (loan to value) ratio above 90%.

The Lend a Hand mortgage skirts this problem by asking parents, grandparents or other family members to make available savings which must equal 20% of the purchase price – so the buyer and the buyer’s family put down 25% of the price.

On a £150,000 home, Lloyds TSB will lend £142,500 to buyers who put down just £7,500. But £30,000 is provided by parents, grandparents and friends to earn a fixed rate 3.75% gross for 42 months.

The bank holds a legal charge on this money and, if the house is resold at a whopping loss within three years, it can take part of those savings to cover losses.

After three years – it is assumed – buyers will have 10% of the equity in their home. If they do, the parents are released from their obligations and the charge lifted from their savings.

If the buyers do not yet hold a 10% stake, all three sides to the agreement decide on a new way forward.

The parents might hand cash to their children to give them a 10% stake. Or Lloyds TSB might want the family savings to stay in its coffers for longer – until rising prices enable the owners to satisfy the 10% requirement.

The scheme means parents can use spare money to help the next generation onto the housing ladder – without the embarrassment of having to ask for it back!