For first time buyers with low deposits, mortgages funded by the government’s Help-to-Buy scheme might not always provide the best deal, Which? research has found.
For a borrower buying their first home with only a 5% deposit, the best fixed rate deal over three years is offered by Clydesdale and Yorkshire banks at 4.99%.
However, mortgages provided under Help-to-Buy – where the government guarantees to repay up to 15% of the property value if the borrower defaults – are offered at higher rates by Barclays (5.35%) and Virgin Money (5.39%).
To learn more about the types of first time buyer mortgages available, read our guide to buying your first home.
Better value mortgage deals
For a five year fixed deal, a 4.75% mortgage from Furness Building Society undercuts HSBC’s 4.99% Help-to-Buy deal, although to apply for the former you would need to visit one of its branches in the north west.
Banks NatWest, Santander, Virgin Money and Barclays also offer five year fixed mortgages covered under the scheme at 5.49%. However, several non Help-to-Buy lenders offer better value deals, including building societies Norwich & Peterborough, Barnsley and Yorkshire.
Help-to-Buy better over short terms
However, Help-to-Buy deals rate better over two years. HSBC offers the cheapest available fixed deal of 4.79%, followed closely by other scheme members Santander, NatWest and RBS. Norwich & Peterborough BS still matches these latter three banks, though, with a 4.99% fee-free deal.
Like HSBC, Norwich & Peterborough BS also offers a 4.79% two year deal. But its hefty £845 reservation fee means it’s likely to be more competitive for borrowers buying in London than it is for those purchasing an average-priced UK house.
The Help-to-Buy scheme was launched last October to encourage lenders to provide more mortgages to house-buyers with small deposits.
Eight lenders presently provide mortgages on the scheme, the most recent being Santander and Barclays. The majority of these deals are fixed, but Santander recently launched the only two year tracker available to borrowers with a 5% deposit – a fee-free deal that tracks at 4.49% above the Bank of England Base Rate.
Which? Mortgage Advisers
Which? believes you should take independent mortgage advice before taking out a mortgage. We offer an impartial mortgage advice service, Which? Mortgage Advisers, that looks at every mortgage from every lender. You can also find an independent mortgage adviser using Unbiased.co.uk.