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 97.

    All this will do is artificially push up houses prices. I'm doing quite well trying to save for my first home, this will just push it further out of reach. I thought it was already the reliance on credit that lend to the economic downturn?

  • rate this

    Comment number 96.

    So the lenders are still aiming for a 5% deposit and the government is guaranteeing the first 15%.
    So why are the lenders asking for a higher interest rate than those with a 10% deposit if the financial 'risk' to them is lower?

  • rate this

    Comment number 95.

    This scheme is supposed to HELP people start buyung a house. Its not an answer for everything, people will still have to work hard, suffer interest rates going up & down, familiy circumstances changing. ITS ALWAYS BEEN LIKE THIS. So stop whinging, either take advantage of it or keep saving and move into your new home when you're 55

  • rate this

    Comment number 94.

    Best way to help is to do something about the rental market. Ridiculous how fast rent is going up, it's getting to the point where paying a mortgage monthly is cheaper than renting.

  • rate this

    Comment number 93.

    On a mortgage we normally pay back three times what we borrow.
    Why doesn’t the government simply lend the lot to the borrower at a decent rate and use the profits to fund pensions?
    Or does that cut out the middle man?

  • rate this

    Comment number 92.

    Maybe this scheme should be called, Help to get into debt or help to inflate the housing bubble or help the bakers or some such.

    The only schemes helpful to first time buyers are those that make housing affordable. That means more houses and no option to buy for those who own multiple properties already such as private landlords and companies.

  • rate this

    Comment number 91.

    It's all been said already. I'm LIVID that these cynical, immoral, excuses for politicians are SELLING OUR YOUNG INTO SLAVERY to protect asset prices, boomer goodwill and bank balance sheets; all on the RISIBLE PRETEXT of "helping hard-working people".

    Where's the Help to Rent scheme???

  • rate this

    Comment number 90.

    Britain has too many people -get rid of some of them and lets have a demand & a population level which matches the space and the resources available. Far too much disposable income is tied up in just paying for somewhere to live, so is therefore not available to buy products & services and stimulate growth, the economy & jobs.

  • rate this

    Comment number 89.

    Either the gov't believes in a free market or not, they need to stop interfering and subsidising housing, all it does it push prices up and make businesses weaker. It does no favours to FTB's, the housing market or the economy.

    People are not buying for a simple reason..the prices are too expensive, not because banks are not lending.

  • rate this

    Comment number 88.

    77. therealist
    Loads missing the point on here (again).
    The only house price bubble is in London and surrounds, elsewhere the larket is still struggling. Many trades & businesses depend on an active housing market and a boost outside of London will provide help to many who are struggling,
    So why not limit it to properties under 250k, a sensible max level for a FTB?

  • rate this

    Comment number 87.

    And now I am left with no choice but to buy a house, because prices are now set to rise over 40% in the next 5 years.
    So I either get on the train asap or get stuck paying somebody elses mortgage basically until the next inevitable cycle collapse.

    If Dave and Gideon think they just bought my vote they are absolutely dead wrong. They just guaranteed I never consider the Greedy Party as a contender

  • rate this

    Comment number 86.

    Using the example, a £200,000 house mortgaged at £190,000 over 25 years at 5% is over £1100 a month. That's a huge financial undertaking for anyone with a family income less than £54,000 a year. I use this figure because it is 3.5 times the single person multiplier banks apply to how much you can borrow.
    And that's before;
    an inevitable interest rate rise in the future.
    having a life.

  • rate this

    Comment number 85.

    I agree with this proposal on the whole but if you can afford a £600000 mortgage you shouldn't need any help. I think the amount should be more realistic £250 - 300K. There should also be safeguards so that the people who use this are in secure jobs and can afford the whole term of repayments so we don't have to bail them out at a later date.

  • rate this

    Comment number 84.

    Here is some simple maths for George and Danny

    a) Low supply + High demand = Higher Prices
    b) 2 + 2 = 4

    If you can’t work out a) I would be surprised if you could manage b).

    This scheme will do nothing than cause a bubble which will inevitably burst with the tax payer picking up the pieces AGAIN.

  • rate this

    Comment number 83.

    One thing that seems to be getting overlooked - not only will those taking part in the scheme be subject to any interest rate rises - in year 5 of their mortgage, they will have to start paying the 1.75% + RPI loan fee on top of their repayments - note "Loan Fee" as they cannot repay the capital until they move. I can't see this ending well for the target market of this scheme!

  • rate this

    Comment number 82.

    People like Danny Alexander who think there is no housing bubble despite unprecedentedly high prices relative to wages, totally unrelated to any fundamentals, throughout the entire country, are market fundamentalists and should not be allowed anywhere near the reigns of economic power in this country.

  • rate this

    Comment number 81.

    Not a fan of this scheme at all, however their is a lot of ill informed nonsense on here.

    There is currently a £12bn guarantee limit set and the assumption that all buyers will default if interest rates rise in the future is unfounded.

  • rate this

    Comment number 80.

    It seems we like cheaper prices in all of our products, except homes.

    Why is the success of the housing market, unlike all others, is determined by how high our government can inflate prices?

    Surely, decreasing prices are preferred - just as we enjoy cheaper washing machines, cars, TVs, phones, computers etc.

  • rate this

    Comment number 79.

    Just wish they'd tackle the real issue. A choice between shortage of supply and over-priced houses (admittedly a large portion of that is due to economic idiocy, but actual supply is part of the issue), or further spoiling an already over-developed country by more building is no choice. Grow some balls politicians and find the third way, face up to the population problem!

  • rate this

    Comment number 78.

    17.Peter Barry
    33 Minutes ago

    Taxpayer picks up part of the mess - many lives ruined (but not that of any banker).


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