New Help to Buy mortgage deals- are they hot or not?

8 October 2013

monopoly housesThe shiny new Help to Buy scheme is now officially open for applications, with the first providers revealing their rates under the new schemes. RBS and NatWest are offering a two-year, fixed-rate mortgage starting at 4.99% for those with a 5% deposit, with no fee, while Halifax will be taking applications in the next few days at a 5.19% rate, but with the addition of a £995 fee for those with the same 5% deposit.

Initially, it had been feared that the mortgage providers would hike rates up to cover the Government’s charge for the seven-year 15% security, which has now been announced as 0.9% of the purchase price. However, from the limited pool of 95% mortgages available outside of Help to Buy, figures from Moneyfacts suggest the cheapest national deal was 5.95% for those with a 5% deposit, or 3.54% with a £1,675 fee for those stumping up 10%. All a teeny bit higher than the 0.5% base rate though.

Figures on actual deals are not yet available from HSBC, who said it would join the scheme later in the year, and Virgin Money who will offer Help to Buy mortgages from January.

As previously described, this new Help to Buy scheme is available on new and old homes, to first time buyers and home movers and on properties worth up to £600,000. And the difference could be massive- someone buying a UK average house at £175,000 would previously have had to find £35,000 - £43,750 for a 20%-25% deposit; now they need only £8,750 up front.

But there are still critics of the scheme, who claim that it is middle class wealthy homeowners who will benefit the most and that the Government is just manufacturing  new property price bubble. The Government, of course, deny this, waving the fact that the Bank of England can pull the scheme after three years if they think property prices are inflating too quickly. But how can prices not increase with even a basic knowledge of economics- unless new houses are built to increase supply, Help to Buy will increase demand, as more people are able to buy, for the same number of houses, resulting in price rises. And after three years if the Bank of England pulls the plug what will happen then? 2008 too long ago for them to remember?

So will you be availing yourself of the Help to Buy scheme? Is it a good thing or a bad thing?

TOPICS:   Mortgages

16 comments

  • Alexis
    Nobody seems to be pointing out that prices do need to increase. Even if they dropped, people would still need 20k to buy. a) everybody who bought before 2008 is in negative equity b) people who bought after 2008 aren't selling because they won't make much more than they paid If house prices didn't increase, nobody would ever move. The point is that they need to rise, but an affordable rate. We've seen 5 years of complete stagnation in the housing sector. There's a happy medium between banks giving money away and nobody buying or selling. Just because prices are increasing, it doesn't mean there will be another crash. If the government stated that the scheme would end on X date, that would be creating a bubble ready to burst. The scheme just needs to be eased out gradually when the time comes.
  • shiftynifty
    Giving that the only banks offering these help to buy mortgages are either state-owned..state backed...it`sa housing bubble created by the government which will end in a worse scenario than 2008...just a ploy at the mo to buy votes
  • ihateputtingnamesin
    Oh yes, I have a spare £8.5k lying around. For most people a deposit is that hard part. Whether it's £8k or £32, it's still a lot.
  • _Me_
    If you want a 5% deposit mortgage with reasonable rates, search for Nationwide's save to buy scheme. There's a reason why it doesn't show up on most of the searches (including moneyfacts) - you have to keep a savings account for at least 6 months and prove you can save regularly. I love the way people who already own houses (and have done for 20 years) look down on the little people. I bought my first house in '97 for £62k on a 95% (total savings was just over £3k) I got divorced, lost my house (and all the investment) and have to start from scratch. Now I have to find £40k deposit for the same house. And people just whine about "the bubble" this will cause.
  • james
    Alexis, what do you mean "If house prices didn’t increase, nobody would ever move." You mean apart from when they get a job in another town, emigrate, get married, have kids and need more space, have another kid and need even more space, get divorced, move into a care home or die. All those things would still need to happen if prices didn't increase. A house is a home not a free money tap. Not to mention if house prices rose by 10% over 5 years, then your £100,000 home would then be £110,000 but the house you aspire to would go from £200,000 to £220,000. So your house has "earned" you an extra £10K but the house you want to buy has gone up by £20K. Uh, so by house prices increasing you are actually worse off as you have an extra £10K to find. "people who bought after 2008 aren’t selling because they won’t make much more than they paid" Uh who said that it is written in stone that people have to make much more than they paid when they sell? It's a HOUSE not a cash machine. Houses in reality are like cars, they degrade over time and have to have money spent on them to keep them up to standard. If anything a house you've lived in for 5 years should be worth LESS now because you've worn parts of it out! "everybody who bought before 2008 is in negative equity" Firstly people who bought before the boom probably aren't in negative equity (unless they were greedy and did mortgage equity release in order to buy themselves a posh car or pay for expensive holidays, in which case, tough luck. For those who purchased around the time of the initial crash (partial crash) well nobody made them spend that much on a house. They could have refused to buy, they could have rented, they could have waited. "Ohhh house prices HAVE to go up to save all the people who are unlucky, greedy or financially illiterate!" Nope. If anything they have to go down to a level where people can buy a place to live that doesn't cripple them, that they don't have to spend the majority of two salaries servicing the debt on. It's impossible for this country to be productive again if everyone is having pump most of their earnings into their mortgage (or their rent). Who is going to buy products and services if they can barely scrape the house payments together? When interest rates do rise, and they will at some point, whether the government want them to or not, some people are going to be in for a shock. If they can barely cover the mortgage at the lowest interest rates this country has ever seen, how are they going to manage when the base rate returns to 5 or 6%
  • *Will*
    Anyone who takes out one of these mortgages will need to be a moron. The government do not care that you can't afford to buy a house. They care about winning the next general election, and they care about the banks - nothing more. Your aspirations are irrelevant to all the political parties. Taking out one of these things is voluntarily throwing yourself into the best part of a lifetime of debt servitude, overpaying for a roof over your head, and presumably the expectation that you'll vote for the people that helped you screw yourself. On that basis I'm quite sure plenty will go for it, and that they will all regret it.
  • Steve B.
    Alexis - your mind is still stuck in the 'magic money tree credit bubble' which covered most of late 90's up until the 2008 meltdown. It's over and we will never see the prices of houses inflated at this rate, ever again. "They need to rise, but at an affordable rate" I kind of agree but the proble is that the correction has not been allowed to happen in the UK - House prices are still unaffordable hence these utterly moronic policies such as Help to Buy. Homes represent absolutely terrible value for money when measured against household incomes and compared to almost every other country on the planet.
  • SyngenSmythe
    @alexis - Put simply, nobody is pointing out that prices do need to increase because prices don't need to increase. "Even if they dropped, people would still need 20k to buy." ... please run your numbers past me? Not sure where you're going with this one? As it has been alluded to by other comments, house prices were not allowed to correct after the last credit binge and so remain at crazy, unaffordable prices. Need evidence that people can no longer afford these astronomical prices?... the need for crazy tax-payer funded loans / underwriting madness to get people into the bottom of the housing ponzi is alone evidence of this. In answer to your bullet points... a) so? b) so? Interest rate shifts... and lets face it, there's only one direction they can shift in... will make motivated sellers of those who are in houses they can't afford. I am a first time buyer and have saved a 10% deposit along with the expected 3% stamp duty. Can you explain why someone in my position who has saved £40k would want to pay £300k for a small 3 bed semi on some generic 80's estate! I REFUSE to buy when it is perfectly clear that I am getting dreadful value for my money. It would be a bad purchase decision that would stick with me for 25 years! I WILL however buy when (not if) prices begin to resemble something a little more real i.e. avg. house price is 3.5 - 4 times average income ... price:income & price:rent resemble reality.
  • Bear N.
    I'm buying a second home through this scheme in Cornwall so I can get out of London at the weekends. It's an absolute gift from heaven to have some help as having a break is essential and I simply can't afford the deposit for a second home.
  • RuthCStillings
    hi
  • RuthCStillings
    I get paid over $87 per hour working from home with 2 kids at home. I never thought I'd be able to do it but my best friend earns over 10k a month doing this and she convinced me to try. The potential with this is endless. Heres what I've been doing,,,,
  • jt
    @Alexis - you really have no clue do you? @RuthCStillins - How are you making $87 per hour when you can't even enter a comment on a website successfully?
  • Peter P.
    The big issue for me is mortgage companies aren't treating them as the 75% LTV mortgages they are, you're still getting 95% LTV interest rates. The crazy thing is most people looking to buy on this scheme will already be paying more in rent than the mortgage repayments will cost.
  • Isaac H.
    Someone's going to get *ucked and it's the government and the banks who are going to do the *ucking, why ? Because that's how they roll, simples.
  • fibbingarchie
    Well Alexis, it's clear that you've been caught talking out of your bum chimney. Just another refutation to add to economic twaddle you're spouting: '...they need to rise, but an affordable rate.' Have you ever considered the effect of exponential growth? What is an affordable rate? Plot even a modest rate of growth at 2% pa and see how the graph goes parabolic before not too long. Deflation is as necessary as inflation.
  • fibbingarchie
    @ RuthCStillings I take it you're dancing naked in front of your webcam?

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