Yesterday, the government officially launched the Help to Buy Mortgage Guarantee along with details of lender’s fees and some 66 pages of scheme rules.
The £12billion scheme is intended to help thousands of people buy a home. RBS, NatWest and Halifax will start taking applications this week, with HSBC and Virgin Money joining later. However, some bankers working on the scheme say they expect interest rates could be as high as 6%, well above the best deals currently available, due to government fees. Buyers can already get 95% mortgages by paying a rate of around 6%.
Already, RBS and NatWest have announced they are taking applications this week, offering a two-year, fixed-rate mortgage starting at 4.99% for those with a 5% deposit, with no fee. Halifax will be offering mortgages at 5.19% with a £995 fee for its 95% mortgages. HSBC has said it would join the scheme later in the year and Virgin Money and Aldermore offering Help to Buy mortgages in January.
The fee charged to the lender is expected to be around 0.9% of the original loan. The one-off fee paid by the lender guarantees up to 15% of the original property price for seven years. It is thought that most lenders would pass the cost of the government fee to borrowers in the form of higher fees or higher interest rates.
The Help to Buy (2) scheme is expected to continue for three years and is available for both first-time buyers and those moving home seeking up to 95% mortgages to buy a new or old home valued at less than £600,000. It is not available for those buying a second home or buy-to-let properties. A buyer looking to purchase a home costing £300,000 would have to put down a deposit of around £15,000 – 5%.
According to the governments “info graphic”:- during the 1990’s, 14% of mortgages were agreed with a deposit of between 5% and 10%. In the first three months of 2013, the figure was just 2%. The number of 95% mortgage products available today is just 43, whereas in 2008 there were 754.
Borrowers using this Help to Buy scheme will also face stringent financial and credit checks to make sure that they can afford the mortgage payments, with The Council of Mortgage Lenders (CML), confirming affordability checks would be as “rigorous” as they are with any borrower.
Lenders can start offering the mortgages now, but the government will only start to guarantee them from January 2014.
Many economic commentators and financial experts have warned Help to Buy will create another house price bubble. Bringing forward the injection of yet more taxpayer’s money into a housing market that is already showing signs of overheating, whilst at the same time, ignoring the historic fact that state-guaranteed mortgages created the US credit crunch and led to the last financial crisis is madness.
The credit-fuelled recovery is false and unsustainable and is being created for political, rather than sound economic reasons. What will be the next pre 2015 election bribe? “Help to Renovate” – cheap loans for home improvements for people who cannot afford to improve or extend their homes, loft extensions and new kitchens all underwritten by the taxpayer and the Bank of England.