95% Loan to Value (LTV) lending from biggest banks imminent
Following the government’s sudden decision to bring the Help to Buy Scheme launch forward three months, four brands from the two state-backed lenders, RBS and Nat West and Lloyds owned Halifax and Bank of Scotland have confirmed they will launch Help to Buy phase two mortgages to 95% shortly.
Several high street banks will be offering the new Help to Buy mortgages to customers, ranging from 80 to 95% of the property’s value.
It is hoped that the mortgages, backed by the government, will help thousands of people purchase homes up to a maximum value of £600,000. It is aimed at people who cannot get on the property ladder, or move to a new home, because they cannot afford the large deposit required. Under the new mortgage guarantee scheme, the buyer would only need a 5% deposit. The government and the Bank of England then jointly guarantees up to the next 15% of the property’s value, in return for a fee paid for by the lender.
To be able to offer the guarantees ahead of schedule, the government will be allowing lenders to start writing Mortgages now that will become part of the scheme when it opens on 2nd January. Because lenders know that they will be able to purchase a guarantee on these loans when the scheme opens, it means that they are able to offer high loan to value mortgages, much sooner.
Only repayment mortgages will be offered under the scheme. There will be tough checks to make sure buyers can afford their mortgage payments and the borrower’s income will be verified. The scheme will not include interest only or self certified mortgages and the new mortgages will not be available to people with a history of difficulties making debt repayments.
The Help to Buy: mortgage guarantee scheme will be available for three years up to January 2017. Every September the government and the Bank of England Financial Policy Committee will review the impact of the scheme and examine whether the fees or the price cap should be adjusted. If any future government proposed to extend the scheme beyond its three year life the Financial Policy Committee (FPC) would need to agree.