The mortgage guarantee part of the Help to Buy scheme finished on 31 December 2016, so should first-time buyers be worried that they’ll now have fewer mortgages to choose from?
The scheme, which was launched in October 2013, was originally designed to help first-time buyers with only a small deposit to get a mortgage.
It worked like this: buyers only had to put down a 5% deposit, and lenders were offered the option to buy a guarantee from the government, which would provide compensation for any loss they suffered if the borrower failed to keep up their mortgage repayments. This provided lenders with greater security, which encouraged them to offer a wider range of mortgages for up to 95% of the property value.
It also encouraged other lenders to develop products for borrowers with small deposits, even if they didn’t rely on the guarantee.
Will we see the end of 95% mortgages?
Now that the scheme has ended, many first-time buyers may be concerned that this will make it harder for them to buy a home.
However, all the signs are that lenders will continue to offer 95% mortgages, even without the government guarantee.
Many of the major lenders have chosen not to use the government guarantee including Yorkshire Building Society, Nationwide, Tesco Bank and TSB, so the removal of the scheme shouldn’t affect the deals they offer. Other lenders such as Santander, which initially offered 95% Help to Buy mortgage guarantee deals, have since moved away from the scheme, while Natwest and Virgin Money have continued to offer 95% mortgage deals after the removal of the guarantee.
This means that although the end of the Help to Buy mortgage guarantee scheme might seem a major blow if you’re a first-time buyer, there are still plenty of lenders offering mortgages to those with only small deposits
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Although it may still be possible to take out a mortgage with a 5% deposit, you’ll have access to a much wider choice of mortgages if you are able to save a bigger sum to put down.
Mortgage rates for those with a 10% or 15% deposit, for example, can be substantially lower than for those with a 5% deposit, so the more you can save the better.
However, don’t despair if you are struggling to build up a deposit, as there are other options available which may help, including both shared ownership schemes and the equity loan part of the Help to Buy scheme, which doesn’t finish until 2021.
Under this part of the scheme, you will need to raise 5% of the property value as a deposit, and the government will lend you up to 20% of the value of the property you want to buy, or 40% if you’re buying in London. You then take out a mortgage for the remainder. You don’t have to pay any interest on the Government loan for the first five years, but from the sixth year you’re charged a fee of 1.75% of the loan’s value. This will rise each year by the same amount as the Retail Prices Index (RPI) measure of inflation, plus 1%. The loan must be paid off within 25 years, or when you sell your home. The initial loan is repaid, plus a proportion of any growth in property value.
Will the end of Help to Buy mean fewer deals for first-time buyers?