After the blaze of initial publicity, we are now seeing the first real glimpses of how the UK-wide Help to Buy scheme is bedding in.
The scheme allows credit-worthy borrowers to buy a new-build or an older home with a 5% deposit and a state-backed mortgage which removes some of the risk for the lender if the borrower defaults.
The Government has just announced that this incentive encouraged more than 2,000 people to put in offers on homes in the first month of the initiative’s launch, totalling £365m of new mortgage lending.
The reason for the scheme is mainly that deposit mortgages have been harder to come by since the financial downturn, but the new figures show around 75 families a day are taking up the scheme.
State-backed lenders Royal Bank of Scotland (RBS), NatWest, Halifax and Bank of Scotland started offering products under the new phase of Help to Buy last month and HSBC has also just unveiled two new deals it plans to offer under the scheme.
From Monday, HSBC will offer borrowers with a 5% deposit a two-year fixed-rate deal with a rate of 4.79% and a five-year fixed-rate at 4.99%. Both of the products have a £99 booking fee.
Aspiring home buyers may want to wait and see what else is in the pipeline though, as lenders representing around two-thirds of the mortgage market have committed to eventually come on board the scheme.
Competition is also really hotting up among mortgage lenders outside the Help to Buy scheme, as they realise they need to up their game to attract new business.
If you are looking for a 5% deal, it’s worth considering all your options as there are signs that Help to Buy is creating a knock-on effect by encouraging lenders which are not part of the initiative to bring out new deals.
According to financial information website Moneyfacts, the choice of low deposit mortgages is picking up and there were 81 more deals on the market for people with deposits of 5% or 10% at the start of November than a month earlier.
One major development has been that Yorkshire Building Society has just unleashed a wave of new 5% deals onto the market which are not part of Help to Buy.
These 36 new products are available through Yorkshire’s brands Barnsley, Chelsea and Norwich and Peterborough and the group’s intermediary-only lending arm Accord Mortgages.
So what do experts think?
Here three of them give their opinions on the Help to Buy scheme:
Martin Lewis, pictured, founder of MoneySavingExpert.com:
Lewis says people must consider whether they can genuinely afford the repayments – and if this will still be the case when interest rates eventually go up.
Lewis points out that the Government guarantee under the scheme is there to protect the lender, not the borrower. While the borrower puts up 5% of the value of the home, the Government covers the lender for a further 15%, so the lender is effectively only taking on a risk as if the borrower had a 20% deposit.
He says: “If you have only got a 5% deposit and have worked out that getting a mortgage is right for you, you just need to look for a 95% loan-to-value (LTV) mortgage in the same way you always would.
“Some will be funded through Help to Buy, others won’t – but that’s irrelevant for your decision. “What counts are the fees, rate and terms. So if the best 5% deposit mortgage is Help to Buy, and it’s right for you – great, go for it.
“If not, go for the other. The fact it’s Help to Buy gives you no greater or lesser comfort.”
Charlotte Nelson, spokeswoman for financial information website Moneyfacts:
Nelson believes that some aspiring buyers may still end up disappointed as they will have to pass strict credit criteria.
She says: “Despite the increased choice to borrowers, strict credit criteria is still entrenched in banks’ policy and this can cause difficulty for many.” She says that signs that mortgage lenders outside the Help to Buy scheme are also re-vamping their 5% deposit deals “really lays down the gauntlet to the entire mortgage market”.
David Hollingworth, associate director, communications, London and Country Mortgages:
Hollingworth believes the return of such big lenders to the 5% deposit market is “in itself a big thing”. But with house prices rising strongly in some areas, some would-be buyers face a “dilemma” whether to put a 5% deposit down now to beat any future increases or to hold on and try and save for a 10% deposit, which would give them access to lower mortgage rates. He says: “Much will depend on the circumstances. “For example, those concerned that (house) prices are rising and that they will not be able to save hard enough to keep up will value the opportunity to buy sooner with a smaller deposit. “Others happy to keep building a deposit in a market that is not as fast-moving may continue that process, although it still opens the door to buying if the the right property comes along.