Help to Buy 2: Industry reacts
To coincide with the launch Halifax released its Help to Buy 5.19% 2-year fixed rate while HSBC and NatWest announced they plan to opt in joining existing participants Virgin Money and Aldermore.
Barney McCarthy, from Which? Mortgage Advisers, said: “Help to Buy will undoubtedly encourage first-time buyers who previously felt locked out of the housing market but it hasn’t made finding the right mortgage any simpler.
“We would always recommend that borrowers seek independent financial advice to find the best home loan for their individual circumstances.
“After all lenders not involved in the scheme may well adjust their rates too and borrowers may find that a Help to Buy-backed mortgage is not necessarily right for them.”
Jonathan Harris, director of mortgage broker Anderson Harris, said: “Lenders have started to release rates available under the scheme and they are pegged where we would expect them to be.”
“There has been much criticism around the rates offered via the scheme but this is partly to do with the fact that we have been spoilt with rock-bottom rates over the past few years.
“Historically anything around 5% for a 5-year fix is an excellent rate so to pay not much more than that to borrow 95% LTV is competitive.
“The rates compare well with non-assisted high LTV products and these often have lower caps on the amount that can be borrowed so Help to Buy will be more far reaching in its scope.”
To be eligible for a mortgage under the scheme borrowers must cannot have a history of poor credit and the lender must apply an affordability assessment to the application as well as a stress test against further interest rate rises.
A couple taking on the maximum loan via the scheme of £570,000 would need a combined salary of around £142,000 plus the £30,000 deposit and money to cover other costs; stamp duty, conveyancing, survey and other associated fees.
They would also need a good credit history and minimal other financial commitments.
Harris said if the borrowers opted for Halifax’s 2-year fix at 5.19% they would be looking at monthly repayments of £3,396, which would represent nearly half their combined monthly net income.
He said: “This is a considerable commitment so the lender will want to ensure that the couple could service it with relative ease.
“At the very top of the scale then the scheme would suit a young professional couple with good incomes who haven’t had the chance to build up any savings.”
Harris said it may be worth borrowers opting for one of the longer fixes rather than a 2-year deal even though details of only one such product have been released from NatWest.
He added: “There is little expectation in the markets that interest rates will rise in the next two years but over three to five years we could well see a rate rise or two.
“A 5-year fix will give more protection against rate rises which is particularly important with high LTV loans as the borrower is unlikely to have plenty of spare cash to throw at the mortgage.”
Statements of intent to enter the Help to Buy 2 scheme have so far only come from the banking sector with no building societies or mutuals as yet choosing to enter the scheme.
Hilary McVitty, head of external affairs at the Building Societies Association, said: “Many building societies and other mutual lenders have been providing mortgages for buyers with deposits of 10 per cent or less throughout the whole of 2013, with 25,000 mortgages granted in the first eight months.
“With the scheme details now published, BSA members will be considering whether they can best serve their customers by continuing to lend as they have been, outside the Help to Buy: Mortgage Guarantee scheme, or by directly participating. From a consumer’s perspective it makes no difference, provided mortgages to creditworthy borrowers with small deposits are available.
“Whatever happens, the appetite of BSA members to lend with a proportion to those with smaller deposits remains undiminished.”
But increased availability of mortgages at 95% LTV does not mean that finding a mortgage and being accepted will become easier.”
This increased availability of mortgages at a high LTVs has prompted a lot of commentary and media coverage on the risk that it will cause a housing bubble.
But Nigel Stockton, financial services director at Countrywide, said this notion is predominantly coming from London based media.
He said: “Help to Buy phase 2 is a credible and well thought out government policy which was implemented for the benefit of the entire UK housing market.
“The people of Hull, Scunthorpe, Salford, Batley, Beverley, Truro and Cardiff still appear to have no voice in this “bubble” debate.
“The fact that 95% mortgages will just begin to start their local property market again is welcome indeed for them and is far from laughable.
“The rates announced today at 5.19% for a 95% first-time buyer mortgage mean that the mortgage is affordable and repayments are manageable. But most importantly the level of deposit – 5% – is now able to help people get on the housing ladder and alleviate pent up demand for those wishing to purchase their first home or trade up the ladder.
“The fact that 5% is available again as it has been for all buyers since the second world war but only cruelly denied after the credit crunch is excellent news for homebuyers everywhere.”
Professor Michael White, director of Nottingham Trent University’s real estate economics and investment research group, described the idea of a house price bubble being caused by the Help to Buy scheme as a self-fulfilling prophesy.
He said: “If people think house prices are going to rise they are more likely to invest which encourages more transactions which in turn helps push prices up.
“However if you look at the interest rate percentages on offer as part of the scheme they are still way above the Bank of England base rate.
“To pay 4.99% on today’s house prices is a lot of money for a buyer to commit to each month. That may be the thing that stops the price increases becoming unaffordable.”
Chief Executive Philip Hogg said: “With the Help to Buy (Scotland) shared equity scheme and our own MI New Home 95% mortgage guarantee already in place today’s announcement highlights that the new build market offers the widest range of help for those looking to realise their home ownership aspirations.
“Increasing the range of options available to purchasers we hope these initiatives will help stimulate the building of more homes now at its lowest level in 70 years and reverse the downward trend of the last five years.”