Fears raised about borrowers sucked in by H2B

Fears raised about borrowers sucked in by H2B

Borrowers need to avoid being sucked in by the branding of the Help to Buy scheme, as many will actually now find better deals elsewhere, Moneyfacts has warned.

The Help to Buy mortgage guarantee scheme, where the government offers lenders the option to purchase a guarantee on mortgage loans which enables them to offer buyers more high loan-to-value mortgages, will be celebrating its second birthday next month.

Charlotte Nelson, finance expert at Moneyfacts, said Help to Buy has led to the average two-year fixed rate mortgage at 95 per cent loan to value falling by 0.65 per cent in just two years.

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Ms Nelson said: “The launch of Help to Buy acted as a crucial catalyst, promoting the acceptability of lending at this level again. It also prompted lenders outside of the scheme to drop their rates in order to remain competitive.”

However, with more choice on the market, borrowers need to avoid being “sucked in” by the branding of the Help to Buy scheme, as many will actually now find better deals elsewhere.

She said: “For example, by opting for lowest five-year fixed rate at 95 per cent LTV instead of the lowest Help to Buy rate, a borrower could save £308.76 in repayments in just one year.

“Borrowers with small deposits should think about taking advantage of the great rates and numerous deals now, if they haven’t already.

“The Help to Buy mortgage guarantee scheme is due to end next year, and only time will tell whether its removal will extinguish the competitive flame in the 95 per cent mortgage market.”

David Hollingworth, associate director of London and Country Mortgages, told FTAdviser that the introduction of the Help to Buy guarantee was extremely successful and undoubtedly boosted the number of options available to those with small deposits.

He said: “Bringing big name lenders to that end of the market not only increased the choice from what was a mere handful but also helped give other lenders the confidence to launch products.

“From a borrowers’ point of view it makes absolutely no difference whether the mortgage is a guarantee backed deal or not so they should concentrate on finding the best deal for them.

“As more lenders have launched 95 per cent rates, the number electing not to use the government guarantee has grown and Santander has now switched out of the HTB guarantee.

“That is only likely to continue so borrowers should certainly not confine their search to the HTB guarantee.”