How much will Help To Buy mortgages cost?

First-time buyers could find it far better value to wait and save a deposit of 10% than taking out a Help To Buy mortgage with only 5%

The second part of the Government scheme to help first-time buyers on to the property ladder is open for business.

Royal Bank of Scotland and NatWest have launched a two-year fixed rate mortgage at 4.99% and a five-year fixed rate deal at 5.49%, neither have fees.

Meanwhile, Halifax is to launch a two-year fixed-rate at 5.19% with a £995 product fee on Friday.

But compared to average rates on the market at 95% Loan To Value (LTV), the deals are not particularly competitive.

The average fixed-rate on a two-year fixed-rate is 5.08% - lower than Halifax's offering - and the typical rate on a five-year fixed rate is 5.2%.

Average 75% LTV Average 95% LTV RBS/ NatWest
  Two-year fixed-rate
5.08% 4.99%
  Five-year fixed-rate 3.48%5.20% 5.49%
no details

Unlike the first part of the scheme, buyers won’t just be limited to new-builds and will be able to buy any home up to the value of £600,000 with a deposit of just 5%.

The Government will guarantee 20% of the loan risk. After adding the 5% buyer deposit, lenders should - in theory - be pricing the products at a similar rate to its 75% Loan To Value (LTV) mortgages (where a buyer has a deposit of 25%).

But mortgages to accompany the scheme were expected to be a little more expensive, in part because of fees the Government will charge lenders which be passed on to borrowers and the lack of competition among lenders offering the mortgages is no doubt helping drive up rates further.

HSBC and smaller lender Aldermore have announced they will both join the scheme, but not until later in the year.

Still, buyers might have hoped prices would at least beat current average rates.

Is it better to save a deposit of 10%?

The Government launched Help To Buy because first-time buyers were finding it hard to save the sizeable deposit needed to take a mortgage.

But in fact mortgage rates have steadily been dropping for First-Time Buyers for some time.  In fact, the market is positively rosy, if you can scrape together a deposit of 10%.

Commenting on Help To Buy, Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), said:  “Higher loan to value mortgages have already become more readily available as funding has improved and competition intensified.”

Indeed, there are 72 more mortgages for buyers at 90% LTV than there were a year ago, taking the total to 368. As well as incentives to lure first-time buyers through the door, for instance, Lloyds Bank is offering all first-time buyers £500 cashback.

This gives buyers a good deal more flexibility and choice than the handful of lenders who are so far taking part in Help To Buy 2.

Most importantly, rates at 90% LTV have dropped too.

There is now a two-year fixed-rate of 3.54% available at 90% LTV from Chelsea Financial Services, while a five-year fixed rate of 4.45% is available from the Post Office - both beat rates offered under Help To Buy.

Average mortgage rates

Today  Six months ago 1 Year Ago
Average 2 Year Fixed Rate at 95% LTV
5.08%  5.24%  5.75%
Average 2 Year Fixed Rate at 90% LTV
4.58%  4.59%  5.35%
Average 5 Year Fixed Rate at 95% LTV 5.20%   5.54%  5.77%
Average 5 Year Fixed Rate at 90% LTV
4.81%  4.94%  5.53%
Total number of 95% LTV products 44
  73  69
Total number of 90% LTV Products 368  338  296

And rates only look set to drop further as lenders who are not getting involved in Help To Buy, offer ever lower deals at 90% LTV in order to compete.

"Those that can stretch to saving a larger proportion of the purchase price may benefit from more choice and better rates, said David Hollingworth from London & Country Mortgages.

"Prospective buyers seeing house prices rising quickly in their area will feel that Help To Buy deals could get them on the ladder now rather than watching prices run away from them. On the other hand, buyers in areas where prices are stagnant may decide to push on to build a bigger deposit and open up their mortgage options."


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