10-year 0% fixed-rate Help To Buy mortgage launches
The first 10-year Help to Buy mortgage has been launched and it comes with an interest-free option for up to six months.
Leeds Building Society has introduced the deal as an extension to its popular Welcome Mortgage, which allows borrowers to pay an initial 0% for their choice of three or six months. It will also be available as a two-year and five-year fixed rate deal and comes with a free valuation on properties up to £200,000.
The ten-year fix switches to a rate of 4.99% and is the only one of its kind on the market. It has been launched by Leeds in partnership with Barratt Developments and is available in England, Wales and Scotland.
The 0% initial rate means people buying new-builds through the developer, along with the equity loan part of the Help to Buy scheme, will be able to take advantage of greater cashflow when they first move in as well as knowing exactly how much their mortgage repayments will be for the next decade.
Adrian MacDiarmid, head of mortgage lender relations at Barratt, said: "Homebuyers often find the first few months after buying a home the most financially-challenging with, for example, the need for new furniture - so the idea of a short interest-free period is very attractive, as is the peace of mind that the unique fixed 10 year option provides."
What do the experts think?
But what do the mortgage experts think of the new deals? Ray Boulger at brokerage John Charcol told Moneywise that while a 10-year fix would only interest a minority of mortgage customers, he welcomes the innovation on Leeds' part as there are "very few 1-year fixes on the market and no others available for the equity loan part of Help to Buy".
He says it's a good thing for anyone buying a property who believes they will be in it for the long term.
"Purchasers using the HTB equity loan scheme are on average buying properties which are about 20% more expensive than those getting a normal 95% LTV mortgage using the HTB mortgage guarantee scheme," he continued.
"This suggests that many buyers using HTB1 are jumping over what would be their normal first purchase (about 88% of buyers are first-time buyers) and therefore will not need to trade up as quickly as normal to a bigger property."
But while the 10-year fix offers good value for those who are confident of remaining in their property for 10 years, he says other buyers should fix for a shorter term.
Boulger is a bigger fan of the interest-free component of the mortgage range, which he says becomes more significant the longer the fixed-rate period.
"Leeds' Welcome mortgage, which offers a 0% interest rate for three or six months, with a compensating higher rate for the remaining fixed-rate period, works best on longer-term fixed rates as the longer the term to make up the initial period when interest is not paid, the less the impact on the subsequent payments. (Even during the 0% period monthly payments are still required, which will all be capital, as it is a repayment mortgage)," he explains.
"The combination of no payments on 20% of the purchase price plus 0% interest for three or six months on the balance of the mortgage will give borrowers a useful option of even lower mortgage payments initially while they kit out their new property."
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.
A “traditional” mortgage, where the monthly repayments entail of repaying the capital amount borrowed as well as the accrued interest, so that during the loan period the capital debt is gradually paid off so by the end of the term the mortgage has been fully repaid. One advantage of a repayment mortgage is that it removes the risk of having a parallel investment (such as an endowment policy or pension), the performance of which is dependent on the stockmarket, such as with an interest-only mortgage.
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.