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HBF Briefing - Help to Buy Mortgage Guarantee scheme launched today.

Date: 08/10/13

Help to Buy Mortgage Guarantee scheme launched today.

Treasury today announced that Natwest, RBS, Halifax and Bank of Scotland (HBOS) will this week start offering mortgages under the Mortgage Guarantee part of Help to Buy.

The new part of the £12bn scheme will be will be officially launched today (Tues 8 Oct) by the Prime Minister and Chancellor.

Virgin Money has also confirmed they will participate in the scheme, and will be offering new guaranteed mortgages to borrowers in the New Year. Aldermore Bank has confirmed that it is joining the scheme in January and is exploring whether this date can be brought forward. We understand HSBC will also join the scheme later this year.

Natwest and RBS customers will be able to start the process of applying for a mortgage today, with HBOS to follow in the next few days.

Under the scheme, buyers of new and second hand homes will only need a deposit of as little as 5 per cent. Depending on the size of deposit, the government will then guarantee up to 15 per cent of the property’s value for the lender in the event of a repossession in return for a fee from the lender.

There will be scheme advertisements in national newspapers from tomorrow and there is expected to be a high level of interest.

The launch of the scheme has been brought forward by three months, as the details are finalised and lenders are in a position to start offering the mortgages.

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 be included in the scheme.

Treasury also confirmed the final scheme rules including the level of the commercial fee the lenders will be charged.

On the launch of the scheme the 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’s 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.”

Treasury also confirmed there have now been over 15,000 reservations made through the Equity Loan part of the Help to Buy scheme in its first 6 months.

In terms of rates Natwest and RBS are offering 2 and 5 year fixed rate deals available at 4.99% or 5.49% with no fee  whilst it is reported that Halifax will later this week launch a 95% 2-year fixed rate at 5.19% with a £995 fee.

Many experts have expressed concern that the Mortgage Guarantee scheme will inflate a housing bubble and HBF has had to respond to this assertion in many media interviews. We have said it is far too early to reach this conclusion. House prices outside London and the South East are rising only very slowly, so there is no evidence yet of a bubble. Supply will respond, not just new build but as the housing market becomes more active more existing home owners will put their homes on the market, thus adding to supply. In addition, the scheme applies to re-mortgaging with another lender. The Treasury and the Bank of England, especially its Financial Policy Committee, will be watching the situation very closely. If signs of a bubble do begin to emerge, the Treasury could begin to taper down the scheme earlier than the full three years. It is in no one’s interest that a price bubble develops.

Treasury has produced a downloadable Help to Buy fact sheet - click here for PDF copy.

John Stewart, Director of Economic Affiars