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Weighing up high LTV options

This article is part of
Guide to High Loan-to-Value Mortgages

The main differences in the government schemes concern the type of property you are interested in and the maximum value of the property, according to Mark Bullard, head of sales at NatWest Intermediary Solutions.

If the property you are interested in buying is a new build then you can use the Help to Buy shared equity and New Buy schemes, Mr Bullard points out. If it is an existing property then Mr Bullard says the Help to Buy mortgage guarantee scheme is the one to look at.

Both Help to Buy schemes allow homebuyers to buy a property up to £600,000 in value whereas the NewBuy scheme has a limit of £500,000.

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From a customers’ perspective, Brad Fordham, managing director of Santander for Intermediaries, says it should not matter whether they select a deal which is within or outside of Help to Buy.

Referring to the mortgage guaratee scheme, he says there are no additional costs or benefits to the loans as the guarantee is for the lender rather than in any way for the customer - the borrower should simply assess whether the mortgage is right for them in the same way as with any other.

In terms of the value offered, most of the loans under the scheme offer fixed rates for two to five years of between 5 to 5.5 per cent.

In truth, the rates offered under this scheme are not significantly lower than non-Help to Buy mortgages, the benefit is simply that there were far fewer loans available prior to its introduction: recent figures suggest offers have tripled from less than 50 available 95 per cent loans prior to 2013.

In terms of fixed compared with alternative variable rate deals, Mr Fordham says the benefits and downsides are the same as at any other LTV. Fixing guarantees the monthly payment but may currently be more expensive than a tracker, though the potential for rate rises that would bump up the cost of the latter looms.

The positives with Help to Buy are many, according to Brian Murphy, head of lending at Derby-based Mortgage Advice Bureau.

With the equity loan scheme, Mr Murphy says one of the main objectives was to enable buyers with low levels of deposit to once again buy property as they have historically done so in a normally functioning market.

In addition, Mr Murphy says the scheme was aimed at kick starting the construction industry by providing the funding mechanism for buyers to purchase properties that first-time buyers and home movers with low levels of equity or deposit savings could traditionally access.

By providing the enabling mechanism, Mr Murphy says builders will be encouraged to build more homes. There is evidence this is working, but home building levels remain at long-term lows and, again, current trends are not showing substantial change.

The introduction of Help to Buy two has started to ramp up the number of housing transactions back towards more normalised levels, according to Mr Murphy, although we are still some way off the levels of 2005 to 2007.