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First-time buyers should thank Help to Buy, says Moneyfacts

Posted 7 December 2016 by Ben Salisbury

First-time buyers should thank the Help to Buy scheme even if they did not use it because it has helped lower rates for low deposit loans, says Moneyfacts

First-time buyers should be thankful for the Help to Buy scheme even if they did not actually use it to get a mortgage on a property to buy, according to Independent financial product reviewers, Moneyfacts.

As the second phase of the scheme that was introduced in 2013 draws to a close at the end of this year, Moneyfacts says that the aim, to increase the number of high loan-to-value (LYV) mortgages, has succeeded.

In its review of the significance of the scheme and the affect it has had and the impact its withdrawal will have on the market, Moneyfacts found that the Help to Buy mortgage guarantee scheme has been a “hugely positive influence on high LTV mortgage lending” and has also coincided with big rate drops reducing the cost of high LTV lending with the average rate for a two-year mortgage at 95% LTV now at 3.91%, while the five-year equivalent clocks in at 4.84%.

The government said in September when it announced that the second phase would close at the end of December 2016 that “confidence has now returned to the market with an increasing number of lenders offering 90 to 95 per cent loans outside the scheme.”

Research by the organisation found that in October 2013, when Help to Buy started, there were 56 mortgage products using a 95% loan to value ratio, meaning buyers needed just a 5% deposit. This went up to 179 by the end of 2014, 246 by the end of 2015 and currently stands at 269.

Over the same period, the average interest rate attached to a 95% LTV mortgage has fallen from 5.5% to 4.48%.

"31 December marks the end of a successful Government scheme to boost mortgage lending at higher LTVs," commented Charlotte Nelson, finance expert at Moneyfacts. "Phase two acted as a starting gun for lenders to reintroduce mortgages at 95% LTV, bringing some normality back to the mortgage market

“First-time buyers, regardless of if they used the scheme or not, have a lot to thank it for, as prior to the scheme borrowers would have struggled to find a deal that was not locals-only or did not require a parent or guardian to guarantee the loan.

“Even if they did manage to find a suitable deal, the cost of the repayments would have been high. However, since the introduction of the scheme, the number of products has increased by 380% and the average two-year fixed rate has fallen below 4% for the first time on record,” she adds.

However, though the number of products has increased, the rates on Help to Buy deals were not always as competitive as the standard market. Moneyfacts found that the best overall five-year fixed rate deal for a 95% LTV mortgage is currently 3.97% but for a similar Help to Buy product the rate is 0.31% more.

 “Only time will tell what the true effect of the removal of such a pivotal scheme will be. However, the growth we have seen in the past is starting to slow, perhaps showing signs of what is to come for first time buyers” says Nelson.

Some experts believe the low rate deals on longer-term mortgages that have been available could die out because of the impact of the Trump election victory in the USA, which has led to a rise in ling-term borrowing costs for US banks.

However, the closure of the second part of the Help to Buy scheme should not have much impact on the low mortgage rates currently available for UK borrowers because, as Moneyfacts shows in its analysis many of the deals available through Help to Buy were more expensive that the standard deals available anyway.

 

 

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