Help to Buy and House Price Growth

The UK government announced plans to bring the help to buy scheme forward by 3 months (8Th October 2013). It has been seen as a cheeky tactic from the ex-chequer George Osborne to win favour ahead of upcoming elections.

The scheme in essence helps buyers to purchase properties that they otherwise may not be able to afford. At the moment the mortgage lenders typically require a 20% deposit; the government is proposing to act at guarantor for up to 15% of the deposit.

High Street banks including Natwest, RBS, Halifax and Bank of Scotland will start offering new Help to Buy mortgages this week. Other lenders such as Virgin Money and Aldermore Bank will offer mortgages from as early as next year.

How help to buy scheme works?

It means someone trying to buy a £200,000 house currently needs to save up a deposit of £40,000.

Leading banks will offer a range of new Help to Buy mortgages – up to 95 per cent of the property’s value – for homes worth up to £600,000.

Under the scheme, buyers will only need a deposit of as little as 5 per cent.

Depending on the size of deposit, the government will then guarantee up to 15 per cent of the property’s value, in return for a fee from the lender.

The scheme is not available on second homes or buys to let properties.

What is the impact of the help to buy scheme?

According to Money Saving Expert, Martin Lewis, the interest rates on these 95pc mortgages will be unfavourable with fixed rate reaching almost 6per cent and variable rates almost 2% higher.

With higher rates and a 95pc mortgage; it could make the mortgages rather unaffordable for people… is this not what we were trying to avoid since the crash of 2008? Risky lending!

For the lenders, they have a level that the government is acting as guarantor and could effectively bail them out again