The Co-operative Bank has launched a market-leading mortgage for first-time buyers. James Hillion, Head of Mortgages at the bank, explains why it decided to use the Funding for Lending scheme to make this move.
The Funding for Lending scheme was introduced by the government to lend money to banks at cheaper rates. The banks should then in turn lend the money to their customers at lower rates, injecting some much needed credit into the economy.
Some banks have been criticised for not joining the scheme as soon as it was launched, but many of them are on board now. I can certainly say that we’re involved and ready to lend.
Who needs cheaper credit?
The scheme has caused some controversy, as many banks decided to use the funding to lend money to existing home owners with large amounts of equity in their properties, or to people who already have bigger deposits available.
While that’s still a positive step, we felt the banking industry needed to do more to support first-time buyers who, we believe, will play a key role in kick starting the economy.
We want to help first-time buyers onto the property ladder. They are the life blood of the housing industry and surely deserve the opportunity to own their own home. It’s vital because first-time buyers have a ripple effect on the economy – when they buy a home, the money they spend thereafter spans a whole range of sectors from DIY to electrical stores, from food retailers to furniture shops.
That’s why we took the decision to create a market leading mortgage offering 90% Loan to Value (LTV), with a two-year fixed rate of 3.99% using funds secured from the scheme. We also took the step to not charge any arrangement fees as part of the deal – as these often get added to the value of the mortgage.
Get a leg-up on the ladder
Our decision followed recent findings from the Which? Quarterly Consumer Report, which found that 54% of people under 30 are concerned about their ability to get on the property ladder. The same report revealed that the average arrangement fee is now over £1,400.
Our bank is now on track to lend almost £400m to first-time buyers, but we believe that more lenders need to step up to the plate and invest in these borrowers who need more support than ever in these austere times.
Do you think other banks should follow The Co-operative’s lead in offering low-rate mortgages to first-time buyers? Should banks have to be more transparent about what they’re using the funding for?
Which? Conversation provides guest spots to external contributors. This is from James Hillon, Head of Mortgages at The Co-operative Bank. All opinions expressed here are James’ own, not necessarily those of Which?.