Tens of thousands of home buyers will today be offered 95 per cent mortgages

by James Powell

Tens of thousands of home buyers will today be offered 95 per cent mortgages

George Osborne, the Chancellor, will unveil details of the £12 billion Help to Buy scheme which the government hopes will give people the “same chance to get on the property ladder as their parents”.

Royal Bank of Scotland/ Natwest said that from Tuesday it will offer the mortgages to 25,500 home buyers over the next three years, although loans will be more expensive than those already available on the market.

Halifax will also offer the mortgages from this week, while Virgin Money and Aldermore Bank are expected to join the scheme in the New Year.
Mr Cameron said: “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 per cent 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.”
Help to Buy was launched in April initially to provide loans for people moving into newly built homes.

The latest phase is designed to allow first time buyers and existing property owners with a minimum 5 per cent deposit to buy a property worth up to £600,000. The Government guarantees up to 15 per cent of the loan.

The government is pushing ahead with the scheme despite the concerns from Vince Cable, the Liberal Democrat business secretary, that it could create a \"housing bubble\"

From Tuesday, the Royal Bank of Scotland will offer 95 per cent mortgages with a two year fixed rate deal at 4.99 per cent, and a five year fix at 5.49 per cent.

The borrowing rate for the five year deal is significantly more expensive than other mortgages available outside the Help to Buy scheme.

Experts say that because only two state-owned banks are currently offering the deals it may take until next Spring for the rates to become more competitive.

They have suggested that the Treasury stands to make billions from the scheme unless the mortgage market “goes sour”.

The Treasury is expected to charge lenders about £1,000 to insure loans to borrowers with the smallest deposits. The cost is likely to be passed to home buyers.

The treasury is likely to impose a tiered structure for insurance charges, depending on the size of the loan. Charges are expected to range from 0.3 per cent for mortgages between 80 per cent and 85 per cent of the property's value, and 0.9 per cent for loans between 90 per cent and 95 per cent.

For a typical first-time buyer with a 95 per cent mortgage on a property worth £143,000, the charge would be about £1,200.

However, a Treasury source said that the government is not “anticipating making money” on the scheme in the long term. He said that the Treasury will have to pick up the bill when people default on their loans.

Mr Osborne is expected to publish details of how many home owners it expects to default on mortgage payments under the scheme.

Source: www.telegraph.co.uk

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