The product, which has no arrangement fee, forms part of the Co-operative Bank’s existing pledge to lend £360m to first-time buyers in 2012.
Which? executive director Richard Lloyd said: “We have been calling on lenders to use the Funding for Lending Scheme to help first-time buyers and mortgage prisoners so today's news that The Co-operative Bank is to pass on this cheap finance to those struggling to get on the housing ladder is welcome.
“We want to see more banks follow their lead and pass on lower borrowing costs to all borrowers not just those with bigger deposits or equity in their homes.”
Michael Ossei, personal finance expert at uSwitch.com, said the bank is putting its money where its “ethical mouth” is.
He said: “The launch of a competitive two year fixed rate deal along with a 90% loan to value indicates that the Government’s drive to get the banks lending again isn’t falling on deaf ears. It also suggests that for the first time since the scheme launched back in August the scales are beginning to tip in favour of the first time buyer market.
“This challenge by Co-op could throw down the gauntlet for other lenders to follow suit but only time will tell.”
As part of its wider ambition to help people onto the property ladder the bank has also partnered with Camden Council to launch a shared ownership scheme to help first-time buyers to combat high house prices in the region.
In addition the Co-op continues to offer borrowers a route into home ownership via its guarantor mortgages or through Share to Buy which is a solution for those who wish to get a foot on the property ladder by buying with friends.
The news follows 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 £1400.
James Hillon, head of mortgages at The Co-operative Bank, said: “We welcome the FLS as a route to boosting the housing market and the wider economy but believe this goal will only be achieved by increasing the availability of mortgages to first-time buyers rather than just focusing on remortgage customers.
“By offering a market leading rate fee free to those with a 10% deposit we hope to remove some of the barriers to getting on the property ladder and offer first-time buyers a helping hand.”
