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Help to Buy
Are these new 95% LTV Help to Buy mortgages available throughout the whole of the UK?
Unlike Help to Buy 1 (the new build shared equity scheme), mortgages on Help to Buy 2 can be arranged on properties in any part of the UK, subject to the lender’s criteria.
Will lenders offer 95% LTV mortgages up to the scheme maximum of 95% on £600,000? How does this compare with their maximum loan size at 90%?
Both Halifax and RBS/NatWest have confirmed that they will provide mortgages up to the scheme maximum of £570,000 (95% of £600,000). Halifax’s current maximum loan size at 90% LTV is £750,000 and this is not changing. RBS/NatWest has today announced an increase in its maximum loan size at 90% LTV from £500,000 to £550,000, which means its maximum loan at 90% LTV is less than at 95%, a most bizarre situation!
As more lenders join the scheme some are likely to set their maximum loan size at 95% LTV below the scheme maximum.
Can these mortgages be used to buy any property?
The Government has not imposed any restrictions on the type of property which can be bought but it requires lenders to use the same criteria for Help to Buy 2 as their normal criteria. Therefore some properties will not qualify because they are outside a lender’s criteria. For example most lenders have a lower maximum LTV on certain types of property, or won’t lend on them at all. Common examples include ex local authority flats, flats above commercial premises and new build properties, including properties between 6 months and two years old.
The last example is rather ironic and means that whilst Help to Buy 1 (the shared equity scheme) is only available on new build property, and has been very successful at encouraging developers to increase housing starts, which are now 33% up year on year, Help to Buy 2 will, at least initially, not be available for any new build property. This is because most lenders, including RBS/NatWest and Halifax, have a maximum LTV of between 75% and 85% on new builds, with many having a lower maximum on flats than houses.
With very few providers on board with H2B 2, should people jump on products available now or wait to see what else comes out?
Only 2 banks have launched 95% LTV Help to Buy rates this week and indications are it will be at least several weeks before any other lenders join the scheme and hence provide a meaningful increase in competition. RBS/Nat West’s rates are 4.99% for a 2 year fix and 5.49% for a 5 year fix, both with no arrangement fee. Halifax is initially only offering a 2 year fix, with a rate of 5.19% and a fee of £995, which can be added to the mortgage.
With house prices now rising in most parts of the country any benefit from waiting for lower rates is likely to be more than outweighed by an increase in house prices. Therefore my advice to anyone ready to buy is to start looking now, but if at all possible borrow an extra 5% from, e.g., a family member, as 90% LTV rates are a around 1% cheaper than 95% rates, making the marginal cost of the last 5% extremely high.
What do people need to consider when looking at the products available?
There is very limited choice initially – a 2 year fix or a 5 year fix, with the 2 year fixes priced about 1% higher than the lender’s SVR and the 5 year rate 1.5% higher. Bearing in mind interest rates are unlikely to change much, if at all, in the next two years I think for most people a 2 year fix will make more sense than 5 years.
The rationale for this is that around 4% of the mortgage will be paid off in 2 years and house price inflation is likely to remain quite strong over the next 2 years. A combination of capital paid off and house price appreciation is likely to drop the LTV by at least 10% to 85% after 2 years. This should allow in two years’ time a re-mortgage or product transfer at the much cheaper 85% LTV rates, which currently start 2% lower at 2.99% for a comparable 2 year fix, although obviously it will be necessary at the time to assess what type of rate is most appropriate at that time. Alternatively, the mortgage would revert to an SVR (4% currently for RBS/NatWest and 3.99% for Halifax) which is likely at that time to still be well below the initial fixed rate.
If you are close to a 10% deposit would you be better waiting for a bit and saving more to reach a 10% deposit than rush now?
It depends how close you are to reaching the 10%. For buyers at over £250,000 having to find at least 3% stamp duty will already be a further challenge. The trade-off is that waiting to increase the deposit to 10% will give access to rates about 1% cheaper and a much wider choice of lender, against the likelihood of having to pay more for the property by waiting.
What difference does it make to me if my mortgage is offered under the Help to Buy scheme?
There will only be one minor difference. Lenders are not allowed to offer mortgages under this scheme if the borrower will own any other property on completion. Therefore one additional form will have to be signed by borrowers confirming that they will not own any other property on completion.
What mortgage term should I choose?
Mortgages don’t have to be for 25 years. Choose a term based on what monthly payments you are comfortable with, allowing for future rate increases. The shorter the term the less interest you will ultimately pay but most mortgages allow overpayments with no early repayment charges up to 10% p.a. and so don’t be afraid of a longer term if that is what suits your budget. You could then overpay if and when you can afford to, perhaps after a pay rise. In any case you are unlikely to keep the same property, let alone the same mortgage, for 20 years or more. Therefore if you can afford the mortgage on a 30 or 35 year term but not 25 years, perhaps because you are renting and the longer term brings the payments down to a similar level to the rent you are paying, you will still be in a better place than if you keep renting.
Taking a £200,000 mortgage at 4.99% as an example the monthly payments would be as follows:
· 20 year term: £1,319
· 25 year term: £1,168
· 30 year term: £1,072
· 35 year term: £1,008