Doors open for new buyers. But will they like what's inside?

First-timers can dodge a big deposit, but only if they open another account with their lender. By Esther Shaw

With so much turmoil in the mortgage market, finding a good deal has become increasingly hard for borrowers – and especially tough for those who can raise only a small deposit.

A growing band of lenders, keen not to miss a trick, are cashing in on this. They are trying to attract borrowers with the assurance that it isn't necessary to have substantial savings put by.

But this offer comes with strings attached – the proviso that the borrower must take out another account with the same provider. In this way, the customer is tied in and helps to boost the lender's own cash deposits at a time when the banks are trying to reduce their reliance on the money markets to fund new loans.

NatWest is one of the latest to jump on this bandwagon, with the launch of a savings account billed as a "way to help borrowers get on the property ladder". The First Home Saver offers an "attractive haven" to help people build a deposit for their first home, and a "generous tax-free cashback of up to £5,000" on completion of a NatWest mortgage.

While this may sound appealing, brokers are urging caution. "With lenders reducing the maximum loan-to-value [LTV] they are prepared to advance, first-time buyers who can't rely on their parents for financial help will have to go back to old-fashioned values and save for a deposit," says Melanie Bien at Savills Private Finance. "But while it may seem sensible to open a savings account at the same provider with which you plan to take out your mortgage, there is no real advantage to doing so."

With NatWest's rates ranging between just 1.9 and 3.1 per cent, savers could easily do better by going elsewhere and choosing from the whole of the market for their mortgage. Icesave, for example, is offering 6.1 per cent on its tax-free easy access individual savings account (ISA), while Kaupthing Edge is paying 6.31 per cent a year on its savings account.

That said, the big selling point of the NatWest deal is the £5,000 cashback. But Ms Bien points out that to get this in full, savers will need to have £50,000 in their account for up to six months before applying for the mortgage. "This is a significant sum and will be beyond the means of many first-time buyers."

Realistically, adds Louise Cuming from the price-comparison service Moneysupermarket.com, first-timers will only manage to squirrel away between £10,000 and £25,000. "The cashback for saving this amount drops to just £1,250, and this could easily be negated by a less-than-competitive mortgage rate," she says. "While this deal is 'win-win' for NatWest, which benefits from both the savings and mortgage products you hold, it is not the same story for borrowers."

The Halifax, meanwhile, is offering an LTV of 97 per cent to those borrowers who open an account with the bank and agree to have their salary paid in every month. This applies to any current or savings account taken out with the Halifax and compares to the normal maximum LTV of 90 per cent for a first-time buyer.

"The Halifax is taking a slightly different approach but the principle works in the same way," says Ms Cuming. "The Halifax is also in a win-win position, not only benefiting from the salary credits but from the financial insight it gets into the customer, which will mean it can cherry-pick applicants. It's worth noting that the 97 per cent mortgage is not an automatic right of having a salary account with the Halifax – simply a gateway for consideration."

Ms Bien adds that the Halifax deal may be worth considering if you need a higher LTV. "But it is important not to over-stretch yourself," she warns. "This is particularly important as house prices are falling in some areas, which means you could be at risk of ending up in negative equity."

While the latest moves by the banks are a result of the current economic malaise, the idea of tying customers into another product alongside a mortgage is not new. HSBC and Alliance & Leicester have been offering preferential rates to customers who hold their current accounts for some time.

With HSBC, customers who pay a monthly fee of £12.95 for its packaged Plus account qualify for a rate of 5.88 per cent on its two-year fixed-rate home loan, says David Hollingworth at broker London & Country. This compares to HSBC's standard 5.98 per cent rate.

"We've long seen banks trying to get consumers to buy other products, such as life insurance, direct from them, without scouring the whole market or taking advice," says Mr Hollingworth. "The difference now is that some lenders are making this compulsory if you want to take out a mortgage."

He warns consumers to think carefully before putting all their eggs in one basket. "You could find that what you gain on the one hand, you lose on the other," Mr Hollingworth explains. "You need to look at the other products you are being tied into, as these are unlikely to be as good value as you could get by comparing the whole market. This whole concept is as far removed as it can be from encouraging consumers to shop around."

Ms Cuming agrees that the mortgage landscape is changing – prompting lenders to seize the opportunity to demand loyalty in other products. "The concern is that this could mean consumers don't look beyond the shiny wrapping. The devil is always in the detail, so make sure you do your sums."

'I moved my accounts and got an improved

rate of 4.99 per cent'

Steve Lamb, 46, from Crowborough, East Sussex, has just moved both his savings and current accounts to First Direct to benefit from preferential rates on a mortgage with the same provider.

Earlier this year, with his current deal coming to an end, he began shopping around for a new mortgage.

"I had previously had a two-year fix with Chelsea building society at 4.84 per cent, but I knew I wouldn't be able to get as low a rate this time.

"After researching the market, though, I decided to move my current and savings accounts to get a rate of 4.99 per cent on First Direct's five-year fixed-rate mortgage. This is an offset deal and is quite a bit lower than First Direct's standard fix."

Steve adds that he read the small print carefully before making the move: "You have to ensure you know what you're getting into."

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    Day In a Page

    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement