Lloyds TSB will try to break the deadlock at the lowest rungs of the mortgage market with a new deal for first-time buyers that requires parents to stump up their savings as a guarantee against the home loan.

The new "Lend a Hand" mortgage, unveiled today by the tax-payer controlled bank, is an attempt to boost the fortunes of first time buyers, who have been unable to find affordable mortgage deals since the onset of the credit crunch.

It is available up to 95 per cent of a property's value, with a competitive rate of 4.39 per cent fixed for three years. It is available on loans up to £350,000.

Parents, grandparents or friends are required to offset 20 per cent of the size of the loan in a special savings accounts which pays a rate of 3.5 per cent for three and a half years. Lloyds TSB will take a legal charge over the savings, which must remain in the account until the borrower builds up a ten per cent equity stake in their home.

For example, to purchase a £150,000 property, first-time buyers must stump up a 5 per cent deposit, or £7,500 to borrow £142,500. Parents must also store 20 per cent in the "Lend a Hand" savings account, or £30,000.

Lloyds TSB released new research showing that more than two thirds of parents were more likely to help their children to buy their first home if they could retain control of their savings. It said that one in five parents had already used their savings to help their children on to the ladder.

Stephen Noakes, Commercial Director of mortgages at Lloyds Banking Group, said: "Market conditions mean virtually no 95% loan-to-value mortgages are available at the moment, while the few that are come at a high price with stringent credit requirements.

"The legal charge on the parents’ savings account means we can offset the risk of lending at this level to offer a realistic and affordable option for first time buyers. It also gives parents a way of helping their children without actually having to write the cheque.”

There are virtually no other 95 per cent loan-to-value (LTV) deals in the market after lenders became nervous about offering the loans in a falling housing market. A handful of mortgages which require a 10 per cent deposit are available but interest rates are high.

Andrew Hagger of Moneynet.co.uk, the financial website, said: "Hats off to Lloyds for developing this product, let’s see if other lenders follow suit with similar offerings in the near future. Product innovation such as this deal will give a much needed shot in the arm to the housing market. An increase in first time buyer activity can only have a positive knock on effect on links further up the property chain.

David Hollingworth, of London & Country Mortgages, the broker, said: "This combination product could offer an ideal solution for all parties, as long as everyone knows exactly what their commitment is. The parent retains their savings in their name and the child gets a good rate at 95 per cent loan-to-value with a lower credit score requirement."