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Can anyone get Help to Buy?

Three months earlier than expected, the Government has thrown another lifeline to mortgage borrowers who only have a deposit of just 5 per cent.

The second phase of its highly-anticipated – and controversial – Help to Buy mortgage guarantee scheme now sees major mortgage lenders offering state-backed home loans to people (with the required deposit) who want to buy either a new-build or an existing home.

The first phase, launched back in April, only applied to the new-builds. It is hoped the scheme will free up some stuck chains and get the whole housing market moving again, not just certain pockets of the UK, like London, which are already seeing strong demand.

State-backed lenders, Royal Bank of Scotland (RBS) and NatWest, were the first to start offering loans under the scheme, including a fee-free, two-year, fixed-rate deal with a rate of 4.99 per cent. Halifax and Bank of Scotland, which are also backed by the Government, are now also offering a loan under the new initiative with a higher two-year fixed-rate of 5.19 per cent and £995 product fee.

Lenders representing most of the mortgage market have now signed up to the scheme. Other major players in the market, including Santander, HSBC and Barclays, have confirmed they will take part, but they are yet to unveil the full details of what they will be offering. So far, the lenders who are involved in the scheme have reported a strong appetite from consumers for their deals – RBS and NatWest have said would-be applicants have been viewing their new online Help to Buy pages at a rate of 40 times a minute and Lloyd Cochrane, head of mortgages at RBS/NatWest, described the response as "fantastic".

The new mortgage guarantee scheme was originally expected to be fired into action in January, although some analysts had urged the Government to ditch it altogether amid fears that it could lead to another housing bubble by encouraging borrowers to over-stretch themselves. The initiative will be reviewed every September to check its impact and examine whether some of its elements need adjusting.

While the new initiative is expected to spark more competition and widen borrower choice, experts have pointed out that, so far, the rates on offer under Help to Buy are not hugely different from what was already available.

Before the new phase of Help to Buy was launched, only a handful of providers were offering deals to people with deposits as low as 5 per cent, with just 44 products available compared with the 700 products for people with a 20 per cent deposit.

So how does the new scheme work? The first phase of Help to Buy was only aimed at giving people buying a new-build home a helping hand. This latest second phase, which applies to all properties, will stimulate the housing market across the UK.

The new initiative, which runs until January 2017, sees the state offer guarantees totalling around £12 billion to encourage more low-deposit mortgage lending. These guarantees are for the lender, not you as a borrower.

The mortgage lender can buy a guarantee from the Government that will compensate them for some of their losses if a borrower defaults. With some of the risk for the mortgage lender removed, they will then be able to offer a higher loan-to-value mortgage.

Can anyone get a loan out under Help to Buy? No, and the Government has emphasised that borrowers must be credit-worthy. The same tough checks will apply to applicants as if they were applying for any other type of mortgage. Lenders will want to make sure that you can afford your repayments.

Only repayment mortgages will be offered through the initiative, not interest-only ones where the buyer only repays the capital when the mortgage term comes to an end.

The scheme is only for properties worth up to £600,000 and it cannot be used by buy-to-let investors or people looking to buy a second home.

For more information on the scheme or to see if you qualify, please contact Matthews IFA Ltd and we will be happy to advise.

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