Solid logic behind banning the Bank of Mum and Dad

The Bank of Mum & Dad LLC (BMD) is one of Britain's biggest and fastest-growing lenders, and the Newcastle Building Society has decided that it is time it had some competition.

- JAMES MOORE

Its new low-deposit mortgage product, designed for first-time buyers, explicitly bans contributions from the BMD. Whoever came up with the idea deserves a bonus, as it's generated more buzz than a nestful of hornets.

But let's drill down into the details. The First Step mortgage is a 98 per cent loan-to-value product with a minimum deposit of £5,000 or 2 per cent of the property's value, whichever is higher. Buyers can borrow up to £350,000 over 35 years - for the record, the current average house price, according to Nationwide, is £271,079. If you borrow the maximum, you will need to save for a deposit of £7,000, not including fees. The interest rate is 5.25 per cent fixed for five years; it's pricey, but low deposit products always charge more.

The obvious question is how the society, which was keen to stress that it is now "banning the BMD" when I contacted it, will prevent people with deposits coming from that source, or from other cash gifts and/or loans from friends and family, from accessing the product.

The answer is that customers will have to certify that they've saved for their deposit themselves during the application process. Needless to say, fibbing on the forms is not a good idea. It could invalidate the loan and potentially result in prosecution for mortgage fraud. Just don't.