Help to Buy begins with launch of new rates
By Phil Scullion
New 95 per cent mortgage offerings are being announced by major high street lenders, in accordance with the government’s expanded Help to Buy scheme.
Halifax, Natwest and the Royal Bank of Scotland (RBS) are due to take applications from this week, while Virgin Money will stick to the government’s original timetable and only start offering the mortgages in January.
David Cameron announced during the Conservative party conference that the second phase of the scheme was to be brought forward, surprising many in the housing industry.
The government will guarantee the first 15 per cent of any 95 per cent mortgage loan, charging the lender a fee for this service. This will encourage lenders to offer 95 per cent mortgages by reducing their risk, and thus help those who can only afford a low deposit.
Stephen Smith, housing director at Legal & General Network, called the early launch a “welcome boost” for prospective homeowners.
He added though that there are many “important questions” to be answered around the issue of pricing.
“The likelihood is that mortgage rates will not start at the cheapest end of the spectrum and so those borrowers seeking to take advantage of the scheme should carefully plan to ensure they can afford it,” Smith explained.
Competition between mortgage lenders to take advantage of what could be a boom in new home buyers may see rates fall though, as borrowers search for the best deal.
“Borrowers who simply haven’t yet managed to save a large deposit but are able to manage the repayments on a loan are already seeing an improvement in the mortgage choices available to them,” said Paul Smee, Council of Mortgage Lenders director general.
“This will increase with the advent of the Help to Buy mortgage guarantee scheme.”
Both RBS and Natwest are to offer a fixed-rate mortgage starting at 4.99 per cent for a five per cent deposit, with no fee attached.
Halifax will charge a fee of £995, along with a rate of 5.19 per cent.
Stephen Noakes, Halifax mortgage director, predicted “strong demand”, as it offers a “genuine solution” to those who have not been able to get on, or move up, the property ladder.
And it is not just first-time buyers who are expected to take advantage of the scheme, it will also be beneficial to second-steppers looking to upgrade.
Paul Smith, chief executive of haart estate agency, said: “The extra demand should encourage second steppers, those already in their first owned home, to sell into the stronger demand.
“Second steppers will be further buoyed by the fact that they can also take advantage of five per cent deposits if they are short of equity.”
He predicted that property transactions will rise by 10-15 per cent over the next 12 months, adding that this would only trigger a moderate rise in house prices.
However many commentators disagree with this analysis, believing that Help to Buy will instead prompt a boom.
There are also concerns that it was high loan-to-value lending which initially triggered the financial crisis in the United States which led to the crash in 2007.
However Jonathan Harris, director of mortgage broker Anderson Harris, said that he doesn’t not expect the Help to Buy scheme to see irresponsible runaway lending.
“A couple taking on the maximum loan via the scheme – £570,000 – would need a combined salary of around £142,000, plus the £30,000 deposit and money to cover other costs – stamp duty, conveyancing, survey and other associated fees.”
“They would also need a good credit history and minimal other financial commitments.”
He estimated that payments in this situation would take up half of such a couple’s monthly income, a substantially higher monthly percentage cost than most currently pay with mortgage rates at such a low level.
The scheme is more likely to be used by those borrowing for homes in a lower price bracket, but the pattern of a high monthly rate in exchange for not having been able to save up a deposit will be the standard trade-off.
The original phase of the Help to Buy scheme will continue to run, having launched back in April. It works slightly differently, offering a 20 per cent equity loan and direct contact between the government and borrower. This is only available on new-build properties however.
If you are purchasing a property under the Help to Buy Scheme contact AMS Solicitors for advice and a no obligation quote for Conveyancing.