* NatWest and RBS announced this week that their Help to Buy 2 rates will be pegged at 4.99 per cent for a two-year fix and 5.49 per cent for a five-year fix with no fee
* Halifax will offer a two-year fix at 5.19 per cent with £995 fee from tomorrow. All products will be available up to 95 per cent LTV
The above rates are pegged where we would expect them to be. A good credit score and affordability are key, with lenders applying normal criteria for high loan-to-value borrowing. This is only right as lenders should be lending prudently and only to those who can afford to repay their mortgage.
Having said all that, a couple taking on the maximum loan via the scheme – £570,000 – would need a combined salary of around £142,000, plus the £30,000 deposit and money to cover other costs – stamp duty, conveyancing, survey and other associated fees. They would also need a good credit history and minimal other financial commitments. If they then opted for Halifax’s two-year fix pegged at 5.19 per cent, they would be looking at monthly repayments of £3,396, which would represent nearly half their combined monthly net income. This is a considerable commitment so the lender will want to ensure that the couple could service it with relative ease. At the very top of the scale then, the scheme would suit a young professional couple with good incomes who haven’t had the chance to build up any savings.
When choosing a product, it might be worth borrowers opting for one of the longer fixes rather than a two-year deal, even though details of only one such product have been released from NatWest. There is little expectation in the markets that interest rates will rise in the next two years but over three to five years, we could well see a rate rise or two. A five-year fix will give more protection against rate rises, which is particularly important with high LTV loans as the borrower is unlikely to have plenty of spare cash to throw at the mortgage.
There has been much criticism around the rates offered via the scheme but this is partly to do with the fact that we have been spoilt with rock-bottom rates over the past few years. Historically, anything around 5 per cent for a five-year fix is an excellent rate so to pay not much more than that to borrow 95 per cent LTV is competitive. The rates compare well with non-assisted high LTV products and these often have lower caps on the amount that can be borrowed so Help to Buy will be more far reaching in its scope.
Will other lenders join the party and offer Help to Buy products? Some may feel that they already have this sector of the market covered as they already offer high LTV deals but the introduction of the scheme will expand the number of options available to those with modest deposits. As other lenders come on board, we would expect the rates to edge down a little but it is a fact of life that borrowers will always pay a premium for a high LTV.
Contact Anderson Harris for more details.