Help to buy rates start to rise
Santander and Nationwide have upped the rates on two of their Help to Buy mortgage guarantee products.
Santander has increased the interest rate on its two-year fixed-rate deal available for mortgages up to 95% loan to value, from 4.99% to 5.09%. It remains fee-free.
NatWest/RBS has also increased its two-year fix from a rate of 4.99% to 5.39%.
With rates creeping up across the rest of the mortgage market, it's never been more important for those people with small deposits to search all rates available, says David Holingworth, a mortgage broker at London and Country.
Competitive deals outside the scheme that are worthy of consideration, in Hollingworth's view, include Yorkshire Bank's 4.89% three-year fix (for first-time buyers only), which is fee-free and comes with £500 cashback.
For homemovers, the Hinckley & Rugby 4.89% two-year fix with a fee of £990 is another option, as is the Leeds BS five-year fix at 5.19% (with a fee of £999) and Newcastle BS's 5.39% two-year fix, which is fee-free.
Simon Crone at mortgage insurance company Genworth, says the Hanley Economic Building Society two-year discount rate at 4.19% is also a good deal.
Help to Buy is the latest government scheme to assist people in buying a home. It is split into two parts. Part 1 is an equity loan for those buying a new-build home and Part 2 is a mortgage guarantee for loans up to 95% of a property's value. These can be for new and existing homes.
Crone said: "Clearly the introduction of the Help to Buy 2 scheme has stimulated increased activity in the higher loan to value (LTV) mortgage market, however it is not the case that lenders participating in Help to Buy are offering the best products and rates for those with small deposit levels."
He added: "It is therefore vitally important that potential borrowers are able to take a much wider look at the full range of high LTV options offered by all lenders – those using private mortgage insurance guarantees, those involved in the State Help to Buy scheme and those who are operating independently."
Santander has also upped the rates of its two-year fixed-rate at 90% and 85% LTV to 4.59% and 3.29% respectively, up from 4.54% and 3.19%. The 85% LTV deal is available to remortgage customers but the 90% deal is for home movers only.
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%.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.