13 Jun 2016
Author: Stephen Breen
The Government’s Help to Buy Mortgage Guarantee scheme is due to close its doors on December 31st of this year but the success of the scheme has helped to revive the market for low-deposit mortgages – and this is unlikely to change.
The scheme was launched in October 2013 and gives lenders the ability to purchase a government-backed guarantee on high loan-to-value mortgages (i.e. where the amount borrowed is 80 to 95% of the asking price). Under the scheme, borrowers have been able to purchase properties up to the value of £600,000 with a deposit of just 5%. The aim of the scheme was to help kick start the housing market and to assist borrowers who could afford a certain level of mortgage payments but did not have a large enough deposit.
Under the scheme, a borrower is still responsible for the full amount of their mortgage and has to make all of the required payments. The Government simply guarantees some of the money – so for example, on a £200,000 property, the borrower pays a £10,000 deposit and takes a £190,000 mortgage, and the Government guarantees £30,000 of the mortgage should the borrower default. This has given lenders who are part of the scheme the confidence to offer lower rates of interest to borrowers with a small deposit.
Although the scheme is due to end this December, mortgage brokers believe that lenders will continue to serve the high loan-to-value sector with good value rates. However, a vote to leave the EU may negatively impact property prices and could see lenders revising their position in the same way they did after the financial crisis. Should we vote to remain, lenders are likely to have more confidence in the housing market and should continue to lend responsibly at low rates to borrowers with smaller deposits.
Take advantage now
There’s never been a better time to buy if you have a small deposit, with a huge range of deals available and the Help to Buy scheme still in force.
Lenders taking part in the scheme are currently offering 4.48% fixed rate for five years – but lenders outside of the scheme currently have more to offer. Nottingham Building Society for example has a two-year fixed deal available at 3.29% with a fee of just £999. On average, two year fixed deals have dropped by 1.59 percentage points since October 2013 for borrowers with a 5% deposit.
There are also plenty of other help schemes on the table, including the Government’s Help to Buy ISA which offers first time buyers a 25% Government top up on their deposit savings. A new lifetime ISA is due to be introduced next April and this will offer the same 25% top up but with a higher annual deposit limit of £4,000. If buying as a couple, both parties can have their own Help to Buy or Lifetime ISA and benefit from the top ups – provided it is their first home purchase.
Barclays Family Springboard mortgage is also worth considering where the deposit is an issue – this requires no deposit whatsoever, where a family member pays 10% of the purchase price into a special account with Barclays for the first three years of the loan. The sum is paid back to the family member in full with interest, provided that all the mortgage payments have been made as scheduled.