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Wednesday, 9 October 2013

Help to Buy: what you need to know

The government’s Help to Buy scheme has been officially launched by George Osborne, Mortgage Solutions rounds up the key facts you need to know.
Which lenders are offering Help to Buy mortgage guarantee products?
Royal Bank of Scotland and NatWest are the only lenders offering products at launch although Lloyds Banking Group brands Halifax and Bank of Scotland will offer mortgages using the scheme from Friday 11 October.
HSBC plans to offer products by the end of the year while Virgin Money and Aldermore will launch at the start of 2014, although the latter hopes to bring forward its involvement.
What products are available under the Help to Buy scheme?
RBS/NatWest was first to announce product details, the brands will offer a two-year fix at 4.99% and five-year fix at 5.49%, up to 95% LTV. Both products will be fee-free.
So far Halifax has announced a two-year fix at 5.19% with a £995 fee, more product details are expected to be announced shortly.
Which lenders will offer products through mortgage brokers?
RBS/NatWest made the controversial decision to restrict its products to direct channels only at launch but plans to offer Help to Buy through NatWest Intermediary Solutions by the end of the year.
This means brokers are only able to place cases through Halifax for Intermediaries at present. HSBC will continue its direct-only lending policy when it joins the scheme although Virgin Money and Aldermore are likely to offer products through brokers.
What fees are lenders being charged?
Lenders will be charged a one-off fee of 0.9% on all loans between 90-95%, 0.46% on all loans between 85-90% and 0.28% on all loans between 80-85% by the Treasury.
The percentage charged will be reviewed each year and could be changed depending on macro-economic conditions and data gathered from mortgages already using the scheme.
What do lenders get in return?
Lenders will be allowed capital relief on mortgages made using Help to Buy, this will depend on the size of the lending institution with major banks each given a different level of relief. Smaller lenders will also receive some capital relief.
What are the scheme's key rules?
All types of properties are eligible as long as the purchase price is £600,000 or less. The property must be located in the UK and lenders are only able to offer residential repayment mortgages, no interest-only or buy-to-let deals are allowed.
Borrowers must sign a declaration stating they have no interest in any other property to proceed with a Help to Buy mortgage. The scheme is not limited to first-time buyers and includes a remortgage element, intended to help mortgage prisoners.
What does the industry think?
Trade bodies including the Council of Mortgage Lenders and the Building Societies Association welcomed the scheme and the publication of its final rules, although CML's Paul Smee said further support for new housing was necessary.
"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," he said. "The homes need to be there for people to buy, as well as the finance to buy them."
Others were more sceptical. Genworth, which already provides insurance on high LTV loans to smaller lending institutions, said: "The pricing structure is designed as a ‘one size fits all', not taking into account individual lenders' risk profiles, as commercial guarantors would.
"The problem with this is more prudent lenders will end up subsidising the rate for more aggressive lenders. And if those more prudent lenders do not participate in Help to Buy, the 'one size fits all' rate would be clearly insufficient."
Treasury Select Committee chair Andrew Tyrie said the government must monitor the progress of the scheme closely.
"Given the chequered history of government interventions in residential property, great care will need to be taken in both the construction and running of this scheme. Mistakes could distort the housing market or carry threats to financial stability," he stated.

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