The return of the 95 percent mortgage in the UK

The Times, which has apparently become a government press release farm, is all excited about a new mortgage product by government-owned Lloyds TSB. "First-time buyer deal breaks mortgage deadlock," says the Times, and the lead in is  "Lloyds TSB earns praise for new 95 per cent LTV."

They go on to describe just exactly how the mortgage deadlock has been broken by singing the praises of a new mortgage that requires a 5% deposit from the buyer and another 20% of the value to be placed in a special savings account by a friend or relative. This deposit will have a charge placed upon it by the bank and must remain as a deposit until such times as the borrower has built up a 10% stake in the property.

They quote a few estate agents as saying this "product innovation," will hopefully generate more first time buyers. As I recall, the last "product innovation," in the mortgage market is still causing us a few issues.

I do wonder just how stupid my government thinks I am, because this is just a 75% mortgage, disguised as something it is not. House prices will continue to decline in the UK for some time and most analysts agree the eventual recovery will be a drawn out affair. This 20% non-deposit will be stuck in that savings account for years, and in the event that the borrower defaults on the mortgage, will belong to Mr Government Inc.

This is just another way of shifting the wealth of the UK away from the individual to the goverment, and I would not touch this "innovative product" with a barge pole. Least of all my parent's bargepole. No doubt these savings accounts will be repackaged as an "investmnent vehicle," and resold for many times their actual value.

According to Lloyds TSB's product page, this mortgage will allow borrowers to "benefit from the lower mortgage rates normally available to customers with a 25% deposit." But guess what?  - you have made a 25% deposit.

The "product fee," for the fixed three year rate of 4.39% is £995, there is a non refundable £99 application fee, a 3% early repayment fee and at the end of the three year "holiday," the mortgage rate will switch to the Standard Variable Mortgage Rate. Sound familiar? Talk about offering a sub-prime mortgage and persuading some other poor schmuck to take the bulk of the risk.