New phase of Help To Buy to start three months early

The government’s Help to Buy mortgage guarantee scheme will be available three months early, launching next week instead of in January. Offering 80 to 95 per cent LTV, the scheme will enable buyers to purchase new or existing homes to the value of £600,000 – as opposed to the first phase of the scheme launched in April, which was only available for new builds.

This has prompted many to ask whether it will create another housing bubble, with an excess of mortgages being sold without enough homes to go with them. In advance of the launch, Graeme Leach, chief economist at the Institute of Directors warned that it could have dire long-term consequences.

“When the scheme is withdrawn any rise in prices that has taken place will be undermined, with potentially disastrous results. There is a real risk that the housing market will become dependent on the underwriting by government, making it very difficult to potentially shut the scheme down,” he said.

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Borrowers looking to take advantage of the mortgage guarantee scheme will be able to access it through Lloyds Banking Group and Royal Bank of Scotland from the outset. Home purchases cannot be completed until the government guarantee is issued in January, but borrowers can apply for, and lenders can approve, mortgages under the scheme from next week.

The availability of the scheme does not necessarily mean, however, that clients will find mortgages any easier to secure and stress-testing will still be just as rigorous. The number of high LTV mortgages on offer will increase off the back of the mortgage guarantee scheme, but the government has made clear that strict income tests will still apply in order to get a mortgage through it. Interest-only and self-certified mortgages will not be available through the scheme at all.

Lloyds and RBS have not set costs for their products at present, but it is likely that rates will be between 4.5 per cent and 5 per cent for a two-year fixed-term at 80 per cent LTV.