Today (8 October), as the prime minister officially launched Help to Buy, the industry was finally told how much the government would charge lenders for the mortgage guarantees that have prompted fears of a housing price bubble.
In a 66-page paper, HM Treasury announced the commercial fee to be paid by the lender shall be calculated as a percentage of the original principal balance of the loan. The fee will be tiered according to the year the loan is offered and the loan-to-value ratio of the loan.
Each of the relevant percentages shall be determined by HM Treasury and notified to the lender in writing or in electronic form, the paper states.
Alongside the report, two lenders, Virgin Money and Aldermore, confirmed they will participate in the scheme as the government officially launched the £12bn initiative.
Aldermore Bank stated that it is joining the scheme in January and is exploring whether this date can be brought forward. Natwest and RBS customers will be able to start the process of applying for a mortgage today, with other banks to follow in the next few days.
The Treasury report and new entrants announcements come on the same day that the Treasury Select Committee revealed it is concerned Help to Buy will drive a housing bubble that could pose a “threat” to financial stability.
The Help to Buy mortgage guarantee is aimed at thousands of people frozen out of the housing market because they cannot afford large deposits of up to 20 per cent of a property’s value, the Treasury said.
Under the scheme, leading banks will offer a range of new mortgages at up to 95 per cent of the property’s value for homes worth up to £600,000. Buyers will only need a deposit of as little as 5 per cent, with the government guaranteeing up to 15 per cent of the property value.
Lenders can start offering the mortgages now and they will be guaranteed by the government from January 2014. If borrowers do complete before January their mortgage will still be included in the scheme.
David Cameron, prime minister, said: “Too many hardworking people are finding it impossible to buy their own home - people who can afford the monthly mortgage payments but haven’t got rich parents and can’t pay the deposit up front.
“There is a need for government to act. Buying your first home is about far more than four walls to sleep at night. It is somewhere to put down roots and raise a family. It’s an investment for the future. Above all, it’s a sign that everything you’ve put in has been worth it.
“Our Help to Buy equity loans, have already helped over 15,000 people buy a new home. But we’ve got to go further and finish the job we’ve started.”