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Help to Buy mortgage scheme launches early

95% mortgage scheme will start next week

Small red plastic house on a desk with three piles of coins at varying heights infront of it

The government’s Help to Buy mortgage scheme will launch next week, three months earlier than planned. The scheme will aim to help people struggling to save a deposit to buy a property or move house with an 80%-95% mortgage.

So far Halifax, RBS and NatWest have signed up for the initiative which will allow people to buy a property worth up to £600,000. Other lenders have yet to confirm whether they will be taking part in the scheme which will run until January 2017.

Buy a property with a 5% deposit

To get a Help to Buy mortgage you need to have saved up a deposit worth at least 5% of the property’s value – you then borrow the rest from a participating mortgage lender. To make these loans less risky for the lender the government will guarantee 15% of the property’s value.

Although the government won’t start offering the guarantees until January, as originally planned, lenders are able to start offering the loans from next week.

Scheme aims to increase number of 95% mortgages

According to Council of Mortgage Lenders data, the average first time buyer deposit stands at 18%. This would mean saving up nearly £30,000 to buy an average UK property worth £165,000. At the moment only 42% of first time buyers are able to purchase a property without financial assistance. 

The Help to Buy scheme is targeted at people who would struggle to save this much or can’t get help from their family.

In the current mortgage market the number of high loan to value mortgages, such as 95%  mortgages or 90% loans, has been relatively low and the rates on these deals are quite high. It is hoped the scheme will encourage lenders to offer more of these mortgages.

There are some restrictions on the scheme which will only include repayment mortgages and not interest only loans. The government has also said people with a history of debt problems will not be eligible.

The mortgage guarantees part of the Help to Buy scheme is the second part of a scheme that the Chancellor announced in the 2013 Budget. The equity loans part of Help to Buy, where the government offers buyers a 20% loan to buy new-build property, has been running since April.

Need mortgage advice?

We believe you should seek independent mortgage advice before taking out a mortgage. The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at every mortgage from every available lender. You can also find an independent mortgage adviser using the Unbiased.co.uk website.

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