Virgin Money has announced the launch of two higher loan-to-value ratio mortgages that are offered as part of the second phase of the government’s Help to Buy scheme which provides guarantees for mortgage lenders.
The guarantees are designed to make credit-worthy individuals who only have small deposits more appealing to lenders and will apply up to 20 per cent of the purchase value, less the homebuyer’s deposit of at least 5 per cent.
In contrast to the equity loans that have been provided under the first phase of the scheme since April of this year, the gurantees are not limited to purchases of new build properties. The maximum purchase value of £600,000 remains.
Originally scheduled to be rolled out from January, chancellor George Osborne announced that applications for the second phase would be brought forward by three months at the Conservative Party annual conference in October, despite fears the scheme is driving a house price ‘bubble’.
Virgin’s mortgages are available at 90 and 95 per cent LTV and carry two-year fixed rates of 4.29 and 5.29 per cent. Rates can also be fixed for three years at 4.69 and 5.39 per cent, or for five years at 4.89 and 5.49 per cent.
None of the mortgages from the new range have a product fee and purchase customers are eligible to claim £300 cashback as a contribution towards “legal fees, valuation fees or the general cost of moving home”, the firm added.
Guarantees provided under the second phase of Help to Buy apply to 20 per cent of the purchase value of a property purchased under the scheme, minus a minimum 5 per cent buyer deposit. The guarantees cover “losses and reasonable costs” incurred by lenders in the event of foreclosure.
Lenders participating in this phase of the scheme will be required to take a 5 per cent share of net losses above the 80 per cent threshold, meaning the maximum amount covered by the government would be 95 per cent of the 15 per cent slice that is guaranteed, or 14.25 per cent.
The guarantees apply to houses with a maximum £600,000 value, meaning the government is covering losses of up to £85,500 on any individual property over the seven-year term.
Anthony Mooney, director of financial services at Virgin Money, said: “Joining the Help to Buy mortgage guarantee scheme today, several weeks ahead of our original plans, further strengthens our commitment to consumers in this under-served part of the market.
“It is encouraging to see that the scheme has got off to a strong start, and we are pleased to be widening the choice of products available to those looking to get on to or move up the housing ladder.”
To read more about how the Help to Buy scheme works, read our Adviser Guide and bank 50 CPd minutes.