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 57.

    Why is it assumed that everyone must be able to buy a house, even if they can't afford it? How can they justify spending taxpayer's money on subsidising someone to buy a £600K house. Add this to the unjustified subsidies to people with children, and married couples, and you end up with everybody except single people being subsidised by the single taxpayer. This makes me weep.

  • Comment number 56.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 55.

    I initially thought the idea behind this scheme was to get house buyers a 5% deposit on an 80% rated mortgage. Instead it's a 5% deposit for a 95% rated mortgage the other 15% is just being guaranteed to the lender. So you buy a house that you couldn't normally save up for and have to pay a high monthly rate... and when rates go up? This is setting up a lot of people for a nasty fall!

  • rate this

    Comment number 54.

    NatWest has been part of RBS for 13 years so hence the 4.99% for both brands. Government controls 75% of RBS and over 40% of Halifax's and Bank of Scotland owners so did they really think it was a great idea or have they been pressured into this scheme. Are any banks which do not have large government stakes taking part in this scheme ? If it goes wrong it is the tax payer who be paying for it.

  • rate this

    Comment number 53.

    Danny hit the nail on the head this morning when he said not many people have huge piles of cash for a deposit. That's the problem that needs tackling - the difference between salaries and the cost of living. Of course that's a very sensible, sustainable and long term plan so it will never happen.

  • rate this

    Comment number 52.

    I expect this will help the bankers and others in the "financial services industry" to pay themselves huge bonuses.

    If it ordinary people get into too much debt their properties will be repossessed and they will get kicked onto the street.

    If the banks run up too much bad debt they will be bailed out by taxpayers and the people who got paid the bonuses will get nice golden handshakes.

  • rate this

    Comment number 51.

    I’m currently looking to buy my first house and I wouldn't go anywhere near this. This has been put in place to protect the banks if and when there is a crash in the market. There is no money for people wanting to buy, just guarantees for the banks when people start defaulting, due to inevitable interest rates hikes. So if that is you you'll lose your house, but the banks won't lose their money.

  • rate this

    Comment number 50.

    It's created a housing bubble and the scheme hasn't even started yet. Enough of these false economies

  • rate this

    Comment number 49.

    "All the housebuilders tell us is that what is holding them back (building more houses) is a lack of demand,"
    I simply don't believe that - they own vast amounts of land but if house prices keep going up and up when will they ever build? I'm sure they keep seeing bigger and bigger pound symbols the longer they hold onto the land.

  • rate this

    Comment number 48.

    This has got to be the daftest idea thought up by any government including the Monster Raving Looney Party who are in power in a parallel universe near you.

  • rate this

    Comment number 47.

    Danny Alexander - "All the housebuilders tell us is that what is holding them back (building more houses) is a lack of demand"

    People who can afford it are not currently prepared to pay the prices the builders want to charge in order to make a large profit. So we are going to help the mugs who can't afford it.

  • rate this

    Comment number 46.

    Can we have an assurance that when this ends in a train crash Osborne and Cameron WILL be held to account ?

  • rate this

    Comment number 45.

    Great news for buy-to-let landlords who are already making a killing from the government (i.e. taxpayers) through housing benefit.

    Bad news for everyone else in the UK.

    Artificially pushing up the price of housing from the bottom without actually increasing housing stock is a recipe for total disaster.

    And what happened to the Tory mantra of the 'free market' - this is state subsidy.

  • rate this

    Comment number 44.

    Property prices are simply too high - look at the ratio of price to salary (should be about 3:1). Average salary is about £26k - average price far more than £78k. We need more affordable secure rented accommodation - frees up money for spending, mobility of labour. Works on the continent, why not here?

  • rate this

    Comment number 43.

    After bailing out the banks, we are now effectively subsidising them by guaranteeing loans where the risk is passed to the taxpaers. What happened to the free market economy the government champions?

  • rate this

    Comment number 42.

    Whats affordable to these people now won't be affordable when interest rates rise.

    They should leave the market alone and if that means no one is buying any houses, it means they cost too much in relation to wages.

    In america the banks were allowed to fail, the property prices bottomed out

    But this govt have chosen to help the banks instead of the people.

  • rate this

    Comment number 41.




  • rate this

    Comment number 40.

    This scheme is laughable. Osborne: Let's focus on demand, fuel it to the ceiling and let supply stagnate. Surely, there won't be an impact on prices? Sanity: Oh yes there will - it's already happening in the south east and will gradually move north. Then interest rates go up, people can't afford the repayments and BANG! here we go again. 100% stupid. A kid of 5 would know better than this.

  • rate this

    Comment number 39.

    The government have lost sight of the fundamental rule of supply - demand. The government are manufacturing demand without the supply. It could mean a housing boom. A few years from now the house prices could be so high that no one can afford a deposit for a house - again. Then what? This is just ridiculous. I know one way to afford a home. If house prices came tumbling down.

  • rate this

    Comment number 38.

    I seem to recall when I bought my first house the Bsoc max was 80% LTV and I had to pay for a 'one off ' insurance to cover the Bsoc for the difference between 80% and the 95% they lent me.Is that system dead or have I got it wrong?


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