A quick guide to Help to Buy
What is Help to Buy?
There are two parts of the Help to Buy scheme. The first is a five-year, interest-free equity loan from the government for buyers of new-build properties worth up to £600,000 in England - provided they can raise a 5% deposit.
This enables the borrower to benefit from lower mortgage rates as they only need to borrow 75% of the property value, instead of 95%.
At the end of the five years, the home owner will start to be charged a fee of 1.75% of the equity loan, rising each year by the retail prices index measure of inflation plus 1%.
The equity loan must be repaid by the end of your mortgage term or when you sell it - depending on which comes first.
The second part is a mortgage guarantee. Banks will offer mortgages up to 95% of the property's value for homes worth up to £600,000 across the UK. This means buyers will be able to put down a deposit of just 5%. The government will then guarantee up to 15% per cent of the property's value, giving the bank the same reassurance had the buyer put down a 20% deposit.
Who can apply for the mortgage guarantee?
Anyone wishing to buy a home - new-build or older - up to the value of £600,000 in the UK to live in as their main residence. The scheme cannot be used to buy second homes or buy-to-let investments. It cannot be used by individuals who own property abroad, either.
Those with county court judgements against from three years prior to application for more than £500 are also unable to apply for the scheme.
What lenders can I apply through?
RBS and NatWest are offering a two-year fixed-rate deal mortgage at an interest rate of 5.39% and a five-year fix at 5.49%. Neither come with fees.
Halifax has announced two two-year fixes. One has a rate of 5.19% and comes with a fee of £995, and the other has a rate of 5.59% but is fee free.
HSBC is offering new homebuyers two fixed-rate mortgages up to 95% loan to value (LTV). The bank has a two-year deal at 4.79% and a five-year deal at 4.99%, both reverting to the lender’s standard variable rate (currently 3.94%) with a booking fee of £99.
Aldermore Bank is providing two-year fixed home loans of up to 95% LTV at an interest rate of 5.28% with no product fee. It was the first bank to make the mortgage guarantee available for those looking to remortgage.
Lloyds is offering two two-year fixes to first timers and home movers. One has a rate of 5.39% (which drops to 5.19% for anyone who has a current account with the bank) and a fee of £995. The other has no fee but the rate is 5.79% (or 5.59% for current account customers).
Santander has three products available, ranging from rates of 4.74% to 5.49%. Its two-year tracker has the lowest rate at 4.74%, no booking fee and comes with a free valuation and £250 cashback. A two-year fix is available on the same terms at 5.09% and a five-year fix is also available at 5.49%.
Barclays has two fixed rates available, a three-year deal at 4.99% until 30 June 2017 and a five-year version at 5.49% - both have an early repayment charge of 3% of the balance repaid during the fixed period.
Post Office also has two fixed-rate products on offer through the scheme, a two-year deal at 4.95% and a five-year version at 5.35%. There are no arrangement fees but early repayment charges of 3% and 5% respectively apply.
Virgin Money has three deals. They're fixed-rate products - a two-year, three-year and five-year are available at 5.29%, 5.39% and 5.49% respectively. They come with an admin fee of £99 and an early repayment charge of 2.5%, 3.5% and 5% respectively. However, all give £300 cashback.
OneSavings Bank will also join the scheme but has yet to say when it will start taking applications or announce interest rates and fees.
Are the rates competitive?
They're not always the most competitive 95% LTV deals on the market but they're usually competitive. As with any mortgage, always remember to factor fees.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).