Prime Minister David Cameron and Chancellor George Osborne said that lenders can start offering the mortgages from today and they will be guaranteed by the government from January 2014.
High Street banks including Natwest, RBS, Halifax and Bank of Scotland will start offering new Help to Buy mortgages this week and Virgin Money said it will be offering new guaranteed mortgages to borrowers in the New Year. Aldermore Bank has confirmed that it is joining the scheme in January, and is exploring whether this date can be brought forward.
Natwest and RBS customers will be able to start the process of applying for a mortgage today, with other banks to follow in the next few days.
The Help to Buy: mortgage guarantee is aimed at thousands of people frozen out of the housing market because they cannot afford large deposits of up to 20% of a property’s value. It means someone trying to buy a £200,000 house currently needs to save up a deposit of £40,000 but under the scheme there will be mortgages for up to 95% of a property’s value for homes worth up to £600,000.
Under the scheme, buyers will only need a deposit of as little as 5% and depending on the size of deposit, the government will then guarantee up to 15% of the property’s value, in return for a fee from the lender.
‘Too many hardworking people are finding it impossible to buy their own home, people who can afford the monthly mortgage payments but haven’t got rich parents and can’t pay the deposit up front,’ said the Prime Minister.
‘There is a need for government to act. Buying your first home is about far more than four walls to sleep at night. It’s somewhere to put down roots and raise a family. It’s an investment for the future. Above all, it’s a sign that everything you’ve put in has been worth it,’ he explained.
‘Our Help to Buy Equity Loans, have already helped over 15,000 people buy a new home. But we’ve got to go further and finish the job we’ve started. So from today, thousands of people will be able to get a foot on the housing ladder by applying for the new Help to Buy mortgage guarantee. If you’ve got 5% of the funds for a mortgage deposit, we’re providing a guarantee to the banks to help you get the rest.
‘Help to Buy is going to make the dream of home ownership a reality for many who would otherwise have been shut out. This goes right to the heart of my vision for Britain, a country where everyone who works hard can get on in life. Moves such as Help to Buy will also encourage house building. If potential buyers can’t buy, builders won’t build so this is an important part of unlocking the market,’ he added.
The Chancellor of the Exchequer, George Osborne, said the aim is to help those families that have saved for years, earn decent salaries, but cannot afford the deposits currently being asked for by the banks.
‘I want young people to have the same chance of getting on the property ladder as their parents and grandparents. Too many people are still being denied the dream of owning their own home, which is why we have brought forward the launch of this scheme, so as of today borrowers can start applying for a mortgage with a five per cent deposit,’ he added.
The Council of Mortgage Lenders welcomed the publication by the government of its detailed package of information about the Help to Buy mortgage guarantee scheme.
The CML said it means that there is likely to be an increase in the availability of high loan to value mortgages as the guarantee scheme should enable the lending industry to have greater confidence in making mortgages available to creditworthy borrowers with low deposits.
It pointed out that borrowers must expect their ability to afford repayments on the mortgage to be assessed as rigorously as an application for any other mortgage; indeed, from the perspective of the borrower, there is no practical difference between a mortgage that is supported by a Help to Buy guarantee and one that is not.
As for lenders, it will be left to their commercial judgment as to whether to participate in the scheme or not. Some may take the view that they already offer some mortgages at high LTVs with out a guarantee, and may not wish to increase lending at this level.
‘Borrowers who simply haven't yet managed to save a large deposit but are able to manage the repayments on a loan are already seeing an improvement in the mortgage choices available to them, and this will increase with the advent of the Help to Buy mortgage guarantee scheme,’ said CML director general Paul Smee.
‘As the mortgage market continues to unfreeze, assisted by Help to Buy and Funding for Lending, an increase in the supply of new housing will be a crucial factor in success. The homes need to be there for people to buy, as well as the finance to buy them,’ he explained.
‘The key benefit of the scheme is in providing additional security to lenders, and so making it more likely that they will be willing to make loans to creditworthy borrowers with modest deposits,’ he added.
