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.

Guarantees

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
    +1

    Comment number 157.

    High house prices are the result of too few being built. A typical British noddy box - we're dwarves apparently - costs less than £100K to build. Adding more money to the market without adding seriously to the supply of houses will have one result: more expensive houses. A rubbish idea altogether but one that will please Daily Mail readers no doubt.

  • rate this
    +1

    Comment number 156.

    So here we go again wasn't it 95% mortgages that got us into this mess in the first place ?? yet again its the taxpayer that's picking up the tab for this .
    Isn't it the Tories who complain about Labour policies adding to our debt mountain ? mark my words when interest rates start to rise the pips will squeak and it will all end in tears and surprise the taxpayer will pick up the tab !

  • rate this
    +3

    Comment number 155.

    The only reason Gideon wants to keep house prices up is so that he can get more revenue from Stamp Duty.

    Meanwhile the banks rub their hands in glee at the stupidly high interest they receive.

    Once again, the rich bankers get richer, and us mere mortals get screwed.

  • rate this
    +3

    Comment number 154.

    £600,000 cap. If you are having trouble buying a house because you cannot find 10 or 15% how on earth are you going to buy a house at that price? I believe this scheme will ultimately fail and yes it will be joe public who pick up the tab. Does anyone honestly think this will help cure the economy in some way, cos I don't. All it will do is raise house prices. Better use the money to build more.

  • rate this
    +6

    Comment number 153.

    This scheme cant be a good thing - As a wannabe first time buyer, i've been saving hard - this scheme is going to inflate prices, so now i'm stuck with either lumbering myself with a more expensive mortgage under this scheme or continue saving but then have to pay the now further inflated house prices - nobody wins here except the banks.

    Prices need to fall but they wont allow it to happen

  • rate this
    +7

    Comment number 152.

    Seeing as the government has backed deposits, 5%+ is sickening. This is blatent profiteering from the banks, leeching off people's hopes and aspirations. As usual banksters are scrapping the bottom of the moral barrell for all it's worth.

    BoE lending rates are 0.5% and inter-bank lending probabley not much higher. Rates over 3.5% are disgraceful.

  • rate this
    +1

    Comment number 151.

    The Tories believe that making middle-Britain wealthy will give them votes. They don't care that this will cause a boom and a bust, all they care about is votes.

    Someone needs to tell them this is not the 80's, we won't be fooled by Thatcherite nonsense these days.

  • rate this
    +2

    Comment number 150.

    At a time of a shaky economy and interest unnaturally low add to the mix the current employment situation and ask how wise anybody would be to take up these offers.
    The banks are offering fixed short term deals of around the 6% interest rates while savers can barely hope to get 2%.
    IMO there are going to be a lot of tears here later down the line.
    Surely it's new cheaper homes wanted here?

  • rate this
    +11

    Comment number 149.

    @Cynical Dave #18
    > This is great news - I've had my £500k bungalow on the market for 5 years now and it's failed to sell.

    Then it's not worth £500k.

  • rate this
    -1

    Comment number 148.

    Housing bubble?? Really?? do any of the commentators talking about a housing bubble actually live outside London?

    Helps landlord?? scheme doesn't apply for second homes - end of

  • rate this
    +1

    Comment number 147.

    I'm sure this initiative has worthy intentions, but what's the difference between Help to Buy mortgages, and sub-prime mortgages that brought on the biggest recession in recent memory? Apart from the fact that the government wasn't subsidising the latter.

  • rate this
    +3

    Comment number 146.

    It will put more and more people into debt. Ridiculous idea!
    If the banks won't lend more than 75% for overpriced housing then there is a reason for that. When interest rates finally go up, the people that take on this scheme will be in real trouble.

  • rate this
    +2

    Comment number 145.

    DC & the vested interest brigade imply that HTB only helps with the DEPOSIT for the buyer
    But it was the GOV + the FSA that insisted that (after the sub-prime fiasco) HIGH DEPOSITS should be implemented to safeguard against IR hikes, negative equity & a repeat of sub-prime
    Financial hypocrisy (and suicide)

  • rate this
    +3

    Comment number 144.

    Ooh a HYS on property.....the elephant in that room aka the UK.

    Danny Alexanders patronising comments have made him look stupid. He must still have been in nappies when the crash hit in the early 90s. High house prices and foolish politicians caused that. Wasn't pretty.

    What have we got now? High house prices.....and foolish politicians, wonder what's coming next

  • rate this
    +3

    Comment number 143.

    Why oh why oh why oh why oh why oh why oh why oh why oh

    why are taxpayers funding another property boom?

  • rate this
    +4

    Comment number 142.

    Inflation is at 3%, wage increases are at 1%, the government is still massively in debt and it wants to back tax fund 95% mortgages. Why does this horrify more people?

  • rate this
    +1

    Comment number 141.

    Help to Buy adds to the already inflated UK economy. Higher prices is only growth in prices. Inflation is not economic growth. And the "feel good factor" is not economic growth either! How can the over-indebted UK, with over-indebted debt junkies, "feel good"? Prices are increasing and so is DEBT, national and personal. Nothing to be "confident" about at all! Delusion or illusion? Both!

  • rate this
    +2

    Comment number 140.

    Does anyone care a tinker's cuss for those whose salaries/wages don't allow them to even think of a mortgage?

    No, thought not!

  • rate this
    +1

    Comment number 139.

    Welcome to the new subprime mortgage crisis a la. Cameron and Clegg, a ridiculous scheme which will inflate house prices and make a terrible housing supply problem even worse. Build council houses, legislate so housing companies cannot sit on land forever and drive prices artificially up and, most importantly, use rate control to slowly reduce the ridiculous housing benefit subsidy to landlords.

  • rate this
    +6

    Comment number 138.

    And yet they completely ignore the social housing issues which see 10,000 people being financially penalised in Birmingham because they haven't all moved into the 75 1 bedroom properties that the council currently has available.

    They are the party of property developers and banks, not a party for the people. We are at the bottom of their priority list. I hope people wake up before 2015.

 

Page 5 of 12

 

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