Second stage of the Help to Buy scheme set to launch 3 months early

by Aaron Strutt

Oct 04 2013

David Cameron has announced that he is bringing forward the second stage of the Help to Buy scheme to potentially assist over a million people to buy new or existing homes. However, there is still a huge amount of confusion surrounding the scheme and no mortgage rates are currently available. There are also real concerns about the scheme and how sensible it is to guarantee such a huge amount of mortgages.

Participating lenders will be able to approve mortgages from next week, but they will not be able to access the government guarantees until January. This means that it will not be possible to complete on a property purchase until the beginning of next year.

The guarantee works on the basis that, in exchange for putting down a 5% deposit, lenders will be able to buy a form of insurance from the government to guarantee up to 15% of the mortgage. The expectation is that lenders will be able to offer more low deposit mortgages.

The government has set aside £12bn of guarantees for up to £130bn of mortgage lending over the next three years. To put this into perspective, lenders advanced approximately £130bn in loans last year.

The mortgage scheme will be available to borrowers with at least a 5% deposit looking to buy properties valued up to £600,000. It is also expected that high street banks will be offering mortgage rates ranging from 80% to 95% of the property's value.

Aaron Strutt, product manager at Trinity Financial, says: "It is fair to say that this scheme has been rushed out because of the Conservative Party conference. There is not a huge amount of information available yet, although the scheme is going to be rolled out by RBS and NatWest next week. Lloyds Banking Group is expected to announce their rates within the coming weeks and Aldermore Bank is likely to join early next year.

"Providing borrowers have a deposit of around 15% or 20% it is likely they will be able to access the current mortgages and most borrowers won't need to access the scheme.  The lenders cheapest mortgages will still be available to those with at least a 25% deposit."

More details about the Help to Buy scheme:

• According to research by Santander, just over five million people believe they can buy a home in the next 12 months. Of those, a third intended to do so using Help to Buy.
• Only capital repayment mortgages will be offered under the scheme.
• Mortgages will not be available to borrowers with a history of difficulties making debt repayments.
• The Help to Buy guarantee will be available for three years up to January 2017.
• Every September the government and the Bank of England Financial Policy Committee will review the impact of the scheme. They will examine whether the fees and price cap should be adjusted.
• Chancellor George Osborne has asked the Bank of England to take a bigger role managing the scheme to ensure the chances of a housing boom are reduced.
• Buy-to-let landlords, those looking to buy a second home and foreign buyers with no credit history in the UK will not qualify for the scheme.
• Under Help to Buy one, the scheme is interest-free for five years and, after this period ends, buyers will be charged a fee of 1.75% of the mortgage. This fee will increase every year at 1% above inflation. These fees only count toward the government loan and come on top of the mortgage repayments.
• The scheme should be available to those looking to remortgage, potentially allowing homeowners the chance to access cheaper mortgage rates.

Trinity Financial understands that the second phase of the Help to Buy scheme will really shake up the housing and mortgage markets for the next few years. Our website will be fully update with rates and acceptance criteria once it comes through.

October 4, 2013