Help to Buy waiting game by mortgage lenders

David Cameron: "Builders won't build unless the buyers are able to buy"

Three large UK mortgage lenders remain undecided on whether to join the government's Help to Buy scheme.

Barclays, Santander and Nationwide Building Society all said they were reviewing the details of the scheme, published on Tuesday, before reaching a decision on participation.

Other lenders have unveiled the cost of mortgages they plan to offer.

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

RBS, NatWest and Halifax will start taking applications this week, with HSBC, Virgin Money, Lloyds, TSB and Aldermore joining later. That means lenders representing about 40% of the UK mortgage market have committed to the scheme.

Rates

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

RBS, which owns NatWest, said it had already filled all of its mortgage appointments across its branch network for the rest of the week. And it said its new online Help to Buy pages were being viewed 40 times per minute.

Halifax will be taking applications by the end of the week at a rate of 5.19% with a £995 fee for those with the same deposit.

Prime Minister David Cameron said he was happy with the interest being shown so far.

"I am very content that we are going to get a good range of products in the market and that is going to help people who want to get on to the housing ladder, who want to own their own home, who can afford mortgage payments but can't currently get mortgages," he said.

"Those are the people we want to help."

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.

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

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

Guarantees

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.

Start Quote

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

End Quote Treasury Select Committee

That fee charged to the lender is 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.

Borrowers 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.

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 had 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.

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

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.

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.

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