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 117.

    Help to Buy 2 may well have the opposite effect of the Tory/ Lib government's intentions! As well as deterring the prudent savers of deposits by inflating house prices out of reach, most of the financially literate will realise that for the next few years - house purchase has become, not the most important 'investment' of their lives but the biggest gamble they will ever take!

  • rate this

    Comment number 116.

    Yet another scheme to keep house prices high.

    So now we've got "help to buy" to get more debt-slave hamsters on the wheel and another scheme called "help to rent", otherwise known as housing benefit.

    2 great ways to use our own taxes to keep us in indebted servitude to the elite.

  • rate this

    Comment number 115.

    good luck to those on a zero hour contracts getting a mortgage.

  • rate this

    Comment number 114.

    Surely the first thing we need is a cap on rents followed by a house building project. As someone brought up in the building trade I am completely at a loss as to the short-term vision the coalition has.

    Then again, have the coalition done anything right? Apart from sacking Jeremy Brown yesterday I can't think of a single thing...

  • rate this

    Comment number 113.

    “Captain Cameron sir, there’s & iceberg ahead”

    “I don’t see any iceberg, just a huge WHITE For Sale sign”

    “So just ask the band to play Land of Hope and Glory a bit louder”

  • rate this

    Comment number 112.

    There is already a bubble- and not just in London- it is evidenced by there being far fewer homes on the market in many areas than there were this time last year, and by higher prices and properties selling much more quickly.

  • rate this

    Comment number 111.

    First gouverment keeps the interest criminlly low to keep iresponsible houskeepers in their houses now they underwrite the money for more iresbonisble buyers. If you cant afford 10% of a mortage you cant afford the house - simple like that. The money is actually stolen from responsible savers in this "scam".

  • rate this

    Comment number 110.

    And this will continue to worsen as more people come to this country. Build more house and control immigration.


    Most immigrants are renting 6 or 8 to a room.

    They are not pushing house prices up.

    Successive Conservative and New Labour (Conservative!) governments have driven house prices high by removing rent restrictions, selling off council housing and propping up the financial sector!

  • rate this

    Comment number 109.

    I think it will be several years before the true "Help To Buy Costs" are really known?

  • rate this

    Comment number 108.

    @95 No, it hasn't always been like this.

    Prior to the ultra-lax lending policies of the 00s, it was entirely possible to purchase a starter home in virtual all of the UK with "starter" income at an earnings ratio such that interest rate shifts were survivable. That hasn't been the case for a decade or so now, and all Help to Buy is is an attempt to recreate the lax lending responsible.

  • rate this

    Comment number 107.

    Its easy to see where the Gov't loyalties lie. Consumers or the building and banking industry.

    Prices too expensive?..ok we'll help you to borrow money you can't afford to repay. We can't have our favourite businesses making a loss.

  • rate this

    Comment number 106.

    "This will keep house prices artificially high.
    Why is it the public can see this, but the politicians in charge can't?"

    Oh but they can, they can
    Never attribute bad policy to a politician's lack of forethought where greed or self interest will explain it just as well.
    I doubt our government or the BBC really believed arming Al Qaeda in Syria and bombing Assad would help the situation either.

  • rate this

    Comment number 105.

    The sensible thing to do is to increase house building massively. Increase the supply and prices should stabilise. Make developers develop their land banks and build lots more affordable/social housing too.

    More building = more construction workers in work and more activity in parts of the retail sector = more tax take for the government = less paid out in unemployment benefits.

    No brainer!

  • rate this

    Comment number 104.

    The Govt getting their banker chums to keep interest rates very low and to create more money helps to some extent but only at the expense of inflation - which is worse than the official figures.
    Most people own houses and have debts and think this is all a good rip-off. But when the time comes for their children or grandchildren to buy (or rent) a house they will curse those who let this happen.

  • rate this

    Comment number 103.

    It's obvious that propping up the market with Help To Buy is going to inflate house prices. If buyers can now 'afford' more then house prices will rise to soak up the extra funding. This will filter upwards on the back of the 'free money'. One day, the piper will come calling, just like he did last time.

  • rate this

    Comment number 102.

    Danny Alexander needs to get out more, not us. There is a housing bubble and it has never been popped. Houses get bought at three times the cost of building them. That is how far they need to fall. All the rest being paid by rich people earning too much, usually by having two incomes, goes into the hands of landowners selling agricultural land to developers. Acquiring all the money flooding up.

  • rate this

    Comment number 101.

    So, the government has decided to move into the sub-prime lending business - with interest rates to match. It wasn't enough that the banks gambled with our money, now the government's doing it too. I despair.

  • rate this

    Comment number 100.

    @76 - The reality of saving up a big enough deposit for houses that are way overpriced is painful.

    The problem is the overpriced house is still overpriced. Instead of paying 20% of it upfront, you pay 5% upfront and pay interest on the rest, including a yearly government fee a couple years after buying the house - it is going to cost people thousands and that's without rates rising!

  • rate this

    Comment number 99.

    At the moment the taxpayer is getting a 1% fee and the exposure is miniscule compared to the billions spent on housing benefit paid to the private sector, which distorts the housing market far more. At least it is taxpayers getting the benefit for a change.

  • rate this

    Comment number 98.

    None of this explains the cost to the nation, especially the underwriting cost when, as is inevitable, the tax payer can no longer distort the property market and it descends into a natural correction. It won't be pretty. Those afflicted with property greed will be ruined. But they don't need to take the rest of the nation with them, the decent people who don't participate in asset bubbles.


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