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Q&A: Help to Buy mortgage scheme Q&A: Help to Buy mortgage scheme
(7 days later)
The government says that its Help to Buy scheme will assist people trying to get on the housing ladder who can afford mortgage repayments but are struggling to raise a deposit.The government says that its Help to Buy scheme will assist people trying to get on the housing ladder who can afford mortgage repayments but are struggling to raise a deposit.
But critics say that the government guarantee, that forms part of the second phase of the scheme, could create a housing bubble in the UK.But critics say that the government guarantee, that forms part of the second phase of the scheme, could create a housing bubble in the UK.
Not all mortgage seekers will be able to sign up, and those who do will still have to go through "rigorous" affordability checks by their lender.Not all mortgage seekers will be able to sign up, and those who do will still have to go through "rigorous" affordability checks by their lender.
Haven't I heard about this for a while?Haven't I heard about this for a while?
Yes, in fact some parts of the scheme have been operating for a few months.Yes, in fact some parts of the scheme have been operating for a few months.
The first phase started in April in England. This sees the government offering a 20% equity loan to buyers of newly-built properties. These buyers must offer a 5% deposit.The first phase started in April in England. This sees the government offering a 20% equity loan to buyers of newly-built properties. These buyers must offer a 5% deposit.
Similar schemes operate in Wales and Scotland - all of which are aimed at encouraging housebuilding.Similar schemes operate in Wales and Scotland - all of which are aimed at encouraging housebuilding.
But that's not all, is it?But that's not all, is it?
No, the second phase of the scheme, originally planned for January 2014, has been brought forward so mortgage products are available from now.No, the second phase of the scheme, originally planned for January 2014, has been brought forward so mortgage products are available from now.
Under this system, borrowers across the UK can put down a deposit of as little as 5% of the property price. The lender offers a mortgage covering the other 95%.Under this system, borrowers across the UK can put down a deposit of as little as 5% of the property price. The lender offers a mortgage covering the other 95%.
Lenders can sign up to the Help to Buy scheme and pay a fee to the government, which will provide a seven-year taxpayer guarantee covering 15% of the loan value. That guarantee can be called in if the borrower defaults.Lenders can sign up to the Help to Buy scheme and pay a fee to the government, which will provide a seven-year taxpayer guarantee covering 15% of the loan value. That guarantee can be called in if the borrower defaults.
It is available for properties sold for up to £600,000 in the UK. The scheme is expected to continue for three years.It is available for properties sold for up to £600,000 in the UK. The scheme is expected to continue for three years.
Are the lenders keen?Are the lenders keen?
There has been a mixed response so far.There has been a mixed response so far.
RBS and Lloyds Banking Group - both of which are taxpayer backed - are participating in the second phase of Help to Buy.RBS and Lloyds Banking Group - both of which are taxpayer backed - are participating in the second phase of Help to Buy.
Smaller lenders Virgin Money and Aldermore have announced that they will be involved as well, from January.Smaller lenders Virgin Money and Aldermore have announced that they will be involved as well, from January.
However, among the lenders still deciding whether to sign up are Barclays, Santander and Nationwide Building Society. Barclays and Santander have also said they would join, but have yet to give details. Nationwide Building Society have yet to decide.
How much do these mortgages cost?How much do these mortgages cost?
A few lenders have started to reveal the pricing of these 95% mortgages.A few lenders have started to reveal the pricing of these 95% mortgages.
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 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.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.
That is relatively competitive compared with prices outside of Help to Buy, although borrowers are likely to get a better deal if they save up longer for a deposit. These 95% mortgages have all but disappeared from the market since the start of the financial crisis.That is relatively competitive compared with prices outside of Help to Buy, although borrowers are likely to get a better deal if they save up longer for a deposit. These 95% mortgages have all but disappeared from the market since the start of the financial crisis.
Is there a chance of a return of irresponsible lending?Is there a chance of a return of irresponsible lending?
The government says that various rules have been included to ensure this does not happen.The government says that various rules have been included to ensure this does not happen.
For example, no interest-only or offset mortgages will be allowed. The system cannot be used for the purchase of second homes or for mortgages for buy-to-let investors.For example, no interest-only or offset mortgages will be allowed. The system cannot be used for the purchase of second homes or for mortgages for buy-to-let investors.
In addition, lenders must put these borrowers through new affordability checks. These were brought in for everyone to avoid a return of the reckless lending of the last boom.In addition, lenders must put these borrowers through new affordability checks. These were brought in for everyone to avoid a return of the reckless lending of the last boom.
You mention boom, isn't this just going to create another one?You mention boom, isn't this just going to create another one?
That's the fear from many commentators who say that Help to Buy is simply going to help some relatively well-off people move up the housing ladder.That's the fear from many commentators who say that Help to Buy is simply going to help some relatively well-off people move up the housing ladder.
Critics, including Labour, say that this does nothing to tackle the shortage of affordable homes to buy, so it wants more focus on housebuilding.Critics, including Labour, say that this does nothing to tackle the shortage of affordable homes to buy, so it wants more focus on housebuilding.
Treasury officials suggest that the system will correct a failure in the market and stimulate builders to get going again with bricks and mortar.Treasury officials suggest that the system will correct a failure in the market and stimulate builders to get going again with bricks and mortar.