Help to Buy scheme extension costs being unveiled

Houses Homebuyers in England may be able to find a mortgage, even if they do not have huge savings

Banks have begun to unveil mortgages which they will offer under the expanded Help to Buy scheme.

The government's initiative is designed to enable buyers who can afford only small deposits to buy a home.

RBS, NatWest and Halifax will start taking applications this week, with HSBC and Virgin Money joining later.

There have been concerns the scheme could fuel a housing price bubble, but Treasury Secretary Danny Alexander told the BBC that there is no UK price boom.

"People who think that there's a housing bubble should get out more. They should get out of Kensington and Chelsea, and go to Manchester or Birmingham, and major towns across the country," he said.

He said the scheme would help those people who did not have "piles of cash" for a mortgage deposit.

RBS and NatWest are offering a two-year, fixed-rate mortgage starting at 4.99% for those with a 5% deposit, with no fee.

Halifax will be taking applications in a few days at a rate of 5.19% with a £995 fee for those with the same deposit.

HSBC said it would join the scheme later in the year, with Virgin Money and Aldermore saying they would offer Help to Buy mortgages from January.


The scheme is getting under way as surveyors report their sales levels are at their highest for nearly four years.

The Royal Institution of Chartered Surveyors (Rics) said a large majority of surveyors were expecting house prices to rise.

Start Quote

Mistakes could distort the housing market or carry threats to financial stability”

End Quote Treasury Select Committee

The first phase of the Help to Buy scheme in England started in April, when buyers of newly built homes were eligible for a 20% equity loan from the government on top of their 5% deposit.

Similar schemes are operating in Scotland and Wales.

Under the second phase, buyers across the UK only need to provide a small deposit, with the government offering a guarantee of 15% of the loan to the lender - for a fee - to encourage the bank or building society to offer the loan.

That fee charged to the lender is expected to be up to 0.9% of the original loan level. This is a one-off fee dealt with entirely by the lender, which guarantees 15% of the mortgage for seven years.

Those who apply will face checks to make sure that they can afford the mortgage payments. The Council of Mortgage Lenders (CML), which represents lenders, said affordability checks would be as "rigorous" as they were with any borrower.

The scheme will be available for first-time buyers and home movers borrowing to buy new and old homes valued at no more than £600,000. It is expected to continue for three years.

It means a buyer looking to purchase a home costing £200,000 would have to put down a deposit of around £10,000. Demands have been much higher than this for many first-time buyers since the start of the financial crisis, usually about 20% of the value of a home.

Best buys?

Prime Minister David Cameron announced at the Conservative Party conference that the second phase of the scheme would be brought forward by three months from January.

Dickie and Heidi Steel say they can save up more quickly for a 5% deposit

A number of lenders have expressed an interest in joining the second phase. Lloyds Banking Group and RBS are the most prominent. Other lenders have yet to commit.

Some products from the Halifax and Bank of Scotland will be available from Friday, with deals from other lenders expected to be in place by January.

Comparisons on the interest rates are difficult, as there are so few 95% mortgages on the market at present.

The most competitive, widely available two-year fixed rate mortgage before Help to Buy, for those offering a 5% deposit has an interest rate of 5.95%, according to financial information service Moneyfacts.

For those able to offer a 10% deposit, the cheapest mortgage deal was 3.54%, with a fee of £1,675, Moneyfacts said.

Price rises

An influential group of MPs has echoed concerns about the potential effect of the Help to Buy scheme. The Treasury Select Committee said that great care was needed from the government when setting up and running the scheme.

"Mistakes could distort the housing market or carry threats to financial stability," it said.

Housebuilding The first phase of Help to Buy was aimed at stimulating housebuilding

It said that - without care - the scheme could raise house prices, rather than stimulate the number of homes for sale.

"We continue to believe that the government of the day will face strong incentives to extend the scheme, with the attendant risk that the mortgage guarantee scheme becomes a permanent feature of the UK mortgage market," it said.

Last month, Chancellor George Osborne asked the Bank of England's Financial Policy Committee (FPC) to make annual reviews of the scheme, starting next September. The committee had been due to make an assessment only after its first three years of operation.

Treasury officials said that the FPC would advise on the fee that lenders have to pay, which could be changed each year, and whether to change the £600,000 limit.

Mr Osborne said that the housing market was recovering from low levels of activity and the latest extension of Help to Buy would help many more people get a foot on the ladder.

Mr Alexander said the Treasury Committee was right to say that Ministers should keep a close watch on Help to Buy. "We will make adjustments if they (the FPC) recommend them," he said.

Shadow Treasury Minister Chris Leslie describes Help to Buy as a "lopsided approach"

He also rejected criticism that the government should be tackling a house supply shortage, rather than demand. "All the housebuilders tell us is that what is holding them back (building more houses) is a lack of demand," he said. "There are lots of other policies that this government is doing to tackle demand."

Chris Leslie, shadow chief secretary to the Treasury, questioned whether homes as expensive as £600,000 should be included in the scheme, and said that more affordable homes should be built.

"Unless George Osborne acts now to build more affordable homes, as we have urged, then soaring prices risk making it even harder for first-time buyers to get on the housing ladder. You can't tackle the cost of living crisis without building more homes," he said.


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  • rate this

    Comment number 37.

    If you can not save for a deposit then you should lower your expectations, work hard, spend less and save up for it!

  • rate this

    Comment number 36.

    Help to Buy is simply a Government created housing bubble designed to :-

    a) Keep the Tories banking sector pals happy, and
    b) To create a general "feel good" atmosphere amongst the general public in order to secure (ie. buy) votes for the 2015 GE (since people usually vote for the party in power if they are happy)

    The tax payer will be the one who ultimately suffers though (once again).

  • rate this

    Comment number 35.

    Help to buy = Help to increase house prices

  • rate this

    Comment number 34.

    All these people blaming estate agents are wrong. Yes, they sometimes use questionable tactics, but the underlying thing that determines house prices is supply and demand. Far too much demand for far too little supply. And this will continue to worsen as more people come to this country. Build more house and control immigration. Simples.

  • rate this

    Comment number 33.

    Another excuse for those who really can't afford it to put it all at risk - at taxpayers expense. I have no faith that the government will improve the situation - the last 3 years is evidence of that. We do not have the RIGHT to own, we have a NEED to have decent housing. Renting is not a crime - and in fact in many cases is preferable.

  • rate this

    Comment number 32.

    I remember the old days when it was the Tories that were considered economically prudent and Labour that borrowed.

    These days its the Tories who are economic imbeciles - underwriting the lender's risks, making mountains of money available to people who the market decides are too risky to lend to.

    Its like the remember nothing of what happened just 4 or 5 years back. It'll end in even more tears.

  • rate this

    Comment number 31.

    The last time house prices shot up, it bankrupted all our banks and subsequently our government.

    Now the plan is to use tax-payers money to push up house prices again.

    What could possibly go wrong?

  • rate this

    Comment number 30.

    This props up the house price bubble from the bottom, increases the cost of mortgages for new buyers who use the scheme and puts the tax payer at risk down the line. Seems like a well thought out plan, so what benefits will it have? If you are a home owner you have a few years of feel good and there is a big short term cash injection for the government in the run up to an election. Hmm.

  • rate this

    Comment number 29.

    I would seriously advise against anyone mortgaging themselves to the limit, as when interest rates rise, as they surely will, it will be a bloodbath.

  • rate this

    Comment number 28.

    Great, can I have a £600K second home please?

  • rate this

    Comment number 27.

    Inside Osborne's head. "I could use money to increase supply of houses and therefore decrease the price, or help secure loans for an increase in demand and therefore price. Hmm my rich housing property friends would like more profit, I'm going with B, generate the stupid scheme that caused the credit crash in 2007, I wonder if I can blame this on Labour too? I'm pretty certain I can........"

  • rate this

    Comment number 26.

    "People who think that there's a housing bubble should get out more."

    People who think there's a housing bubble have seen a graph of house prices vs incomes over the last 50 years. They probably saw this graph indoors, so I guess he's right.

    Go on Beeb... show such a graph with every housing article you put on the site.... I dare you...

  • rate this

    Comment number 25.

    Why don't the government build some houses, then sell them at a reasonable price (only to first time buyers). They can even take a little slice of the top to say the tax payer has got their money back.

    This policy is bad. I'm currently looking for a house and it is already over priced (live in SE). Estate agents are to blame for the inflation of houses too.

  • rate this

    Comment number 24.

    I fail to see why the upper limit is £600, 000. If you can afford a mortgage for that, then you dont need help to buy. Also why isnt this limited to first time buyers? say 2-3 bedrooms? no where in the UK is a 3 bedroom semi/terrace first time house £600k, and if they are, then maybe leaving the area is a better bet rather than perpetuating the high prices of that area.Move to a cheaper one.

  • rate this

    Comment number 23.

    Estate agents and the like, UK and World Wide, have a lot to answer for the current economic fiasco. Who are these people as individuals? Where do they reside? Although seemingly separate trading entities do they conspire together in some place and then collectively inflate the property prices through their overvaluations and clandestine marketing? Spivs, the lot of them.

  • rate this

    Comment number 22.

    When the next property bubble bursts, all the political tinkering in the world won't be able to stop the crash...

  • rate this

    Comment number 21.

    I would like to see the economy stabilise and if that means helping people with good salaries but no savings then that seems to be sensible.

    It's not as though the long term unemployed are going to help, but as long as they are not penalised with higher rents due to shortage of available housing stock, so we need to get building some new houses, to look after low income families.

  • rate this

    Comment number 20.

    If one can't save enough money for a 10% deposit, how is he-she going to repay that 20% loan with interest (inflation + 1% which starts to be added after 5 years)? The only way is to repay it after one sells that house (which can be done according to T&C), i.e. to increase the selling price by 20% + interest. This is called the bubble.

  • rate this

    Comment number 19.

    This is just another disguised subsidy for UK banks.

    "There is a scenario here where banks can borrow FLS funds at 0.75% and then lend them out at 5% which provides quite a margin to pay any fee the UK government may charge! "

    Oh and the taxpayer insures the top part too! Has there even been such an extraordinary state subsidy to one sector of the economy?

  • rate this

    Comment number 18.

    This is great news - I've had my £500k bungalow on the market for 5 years now and it's failed to sell.


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